WASHINGTON: US consumer spending rebounded in May and new applications for unemployment benefits fell last week, suggesting the economy remained on a moderate growth path.
Other data showed contracts to buy previously owned homes surged to their highest level in more than six years in May, keeping the recovery anchored in the face of tighter fiscal policy.
“Economic growth is not over the top, that’s for sure,” said Chris Rupkey chief financial economist at the Bank of Tokyo-Mitsubishi UFJ in New York. “We expect, however, economic growth will be strong enough to bring unemployment down at an acceptable pace.”
The Commerce Department said consumer spending increased 0.3 percent last month, reversing April’s 0.3 percent drop. The increase was in line with expectations. When adjusted for inflation, consumer spending rose 0.2 percent last month. However, the so-called real consumer spending for April was revised to show the first contraction in six months.
This suggests second-quarter consumer spending growth could slow a little bit more than economists had previously anticipated and hold back overall economic growth. Consumer spending grew at a 2.6 percent annual pace in the first quarter.
Some economists pared their second-quarter gross domestic product estimates. Barclays cut its GDP forecast by 0.4 percentage point to a 1.4 percent annual pace, while Morgan Stanley trimmed its estimate to 1.5 percent from 1.6 percent. The economy expanded at a 1.8 percent rate in the first three months of the year.
In a separate report, the Labour Department said initial claims for unemployment benefits fell 9,000 to a seasonally adjusted 346,000. The four-week moving average for new claims, which irons out week-to-week volatility, fell 2,750 to 345,750.
The claims report signaled little change in the pace of job growth. Employment growth has averaged 189,000 jobs per month so far this year.
Recent data, including housing, regional factory activity, business spending plans and consumer confidence, have pointed to an economy that is regaining its footing after stumbling early in the second quarter.
That is broadly supportive of the view the Federal Reserve expressed last week that the downside risks to the economy’s outlook have waned.
The economy’s stabilising tone was underscored by a report from the National Association of Realtors showing signed contracts in May to buy previously owned homes surged to their highest level since December 2006.
While part of the jump in pending home sales reflected a rush by buyers to lock in deals before mortgage rates climbed higher, it was also a sign of underlying strength in the housing market.
Reuters
