Consumer Spending Rises 0.5 Percent

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Consumers, not put off by the choppy economy and a rash of layoffs, shopped up a storm in May.

The Commerce Department reported Monday that consumer spending rose by 0.5 percent in May, slightly faster than many analysts were forecasting. In April, spending went up by a revised 0.5 percent, a bit stronger showing than the government reported a month ago.

Consumer spending has been a key force keeping the economy afloat. In May, the strength largely reflected a jump in purchases of big-ticket manufacturered goods, such as cars.

Americans' incomes, which include wages, interest and government benefits, rose in May for the second month in a row by 0.2 percent, a tad weaker than many analysts were expecting.

The spending and income figures aren't adjusted for inflation.

When consumer spending is adjusted for inflation, it grew by a more moderate 0.3 percent in May, compared with the unadjusted 0.5 percent increase, which includes the costs of higher priced energy products.

Consumer spending accounts for two-thirds of all economic activity and has been a main pillar propping up the country's economy.

Federal Reserve Chairman Alan Greenspan has said one of the biggest factors determining whether the country will skirt a recession is how well consumers hold up during the economic slowdown, which has gripped the nation since the second half of last year.

The Fed has slashed interest rates six times this year in an effort to revive the economy. The most recent reduction, of a quarter-point, came last week. The other five cuts were by a bolder half-point a piece.

The economy barely grew in the first three months of this year, expanding at an annual rate of 1.2 percent, and many believe it did worse in the recently ended second quarter. Many economists predict that the economy grew by a meager 0.5 percent in the April-June quarter and that the period probably will mark the low point in the economic slowdown.

Still, most analysts believe growth will rebound near the end of the year as the Fed's interest-rate cuts and Congress tax-cut refunds take hold.

In May, spending on durables - costly manufactured goods expected to last at least three years, such as cars and washing machines - rose by 1.2 percent, following a tiny 0.1 percent increase. That was the strongest showing since February.

Spending on nondurable goods such as clothes and food went up 0.5 percent in May, down from a 1 percent increase in April.

Spending on services grew by 0.3 percent for the second month in a row. The services category includes such things as gas and electric utilities, visits to doctors, bus and train fares and rent for housing.

None of the spending figures are adjusted for inflation.

With spending outpacing income growth, the personal savings rate - savings as a percentage of after-tax income - dipped from a negative 1 percent in April to a negative 1.3 percent in May, matching a record monthly low set in January.

The savings rate doesn't provide a complete picture of household finances because it doesn't capture gains realized from such things as higher real estate values or from financial investments, economists say.