Consumer spending up 0.2 percent in May

WASHINGTON - U.S. consumers stepped up their spending slightly in May, boosted by a jump in auto sales and higher income.

Spending rose 0.2 percent last month after no gain in April, the Commerce Department said Thursday. The two months followed a robust spending surge of 0.8 percent in March. The broader trend is regarded as strong enough to propel the economy after a dismal start to the year.

Income rose a solid 0.4 percent in May after a 0.3 percent April gain.

An inflation gauge that's closely monitored by the Federal Reserve has risen 1.8 percent over the past 12 months, the fastest rise since late 2012 but still below the Fed's 2 percent target.

Last month, spending on durable goods jumped 0.7 percent, a big rebound after having fallen 0.9 percent in April. In May, auto dealers reported their best sales month in nine years, helped by brisk demand for SUVs and pickup trucks.

Sales of nondurable goods rose 0.2 percent in May after a stronger 0.4 percent April gain, while spending on services such as rent and utilities increased a modest 0.1 percent.

The inflation gauge the Fed watches edged up 0.2 percent in May. The 1.8 percent increase over the past 12 months was up from a 12-month increase of 1.6 percent in April and increases of 1 percent or less for much of the past year.

But the Fed at its meeting last week expressed no concerns about the slight uptick in inflation. It was a signal to financial markets that the Fed is comfortable keeping interest rates at record low levels for now to give the economy a boost. Many analysts believe the Fed's first rate hike will not occur until the summer of 2015.

Consumer spending is closely watched by economists because it accounts for about 70 percent of the country's economic activity.

The government reported Wednesday that overall economic growth, as measured by the gross domestic product, shrank at an annual rate of 2.9 percent in the January-March quarter. That's the biggest drop since the depths of the recession five years ago.

But analysts said the big dip reflected temporary facts such as harsh winter weather that cut into consumer and business activity. In addition, businesses cut back on restocking and companies reduced their spending on new equipment and the trade deficit significantly worsened.

Analysts see all those trends reversing in the current quarter and they expect growth to rebound between 3.5 percent and 4 percent.

They are forecasting the economy will keep forging ahead in the second half of the year with growth around 3 percent as consumer spending is aided by strong gains in employment, rising consumer confidence and gains in the stock market and home prices which will make people feel wealthier and thus more willing to spend.