US consumer spending posts its largest increase in six years

Consumer spending, which accounts for more than two-thirds of US economic activity posts biggest gain since 2009, suggesting US economy is on track

Photo by: Reuters
Photo by: Reuters

Updated Jul 28, 2015

US consumer spending recorded its largest increase in nearly six years in May on strong demand for automobiles and other big-ticket items, further evidence that economic growth was gathering momentum in the second quarter.

While other data on Thursday showed a modest increase in first-time applications for unemployment benefits last week, the underlying trend in jobless claims continued to suggest the labor market was tightening.

"The robust rebound in spending provides some much needed confidence that the economic recovery is continuing to build on the positive momentum of recent months," said Millan Mulraine, deputy chief economist at TD Securities in New York.

The Commerce Department said consumer spending increased 0.9 percent last month, the biggest gain since August 2009, after an upwardly revised 0.1 percent rise in April.

May's sturdy increase suggested households were finally spending some of the windfall from lower gasoline prices, and capped a month of solid economic reports.

Consumer spending, which accounts for more than two-thirds of US economic activity, was previously reported to have been unchanged in April and economists had forecast a 0.7 percent rise in May.

The increase in spending was the latest sign that growth was accelerating after gross domestic product shrank at a 0.2 percent annual rate in the first quarter, as the economy battled bad weather, port disruptions, a strong dollar and spending cuts in the energy sector.

From employment to the housing market, the economic data for May has been bullish. Even manufacturing, which is struggling with the lingering effects of dollar strength and lower energy prices, is starting to stabilize.

The firming economy suggests the Federal Reserve could raise interest rates this year even as inflation remains well below the U.S. central bank's 2 percent target.

US stock index futures rose slightly after the data, while prices of Treasuries fell. The dollar edged up against a basket of currencies.