Consumer Spending Ticks Up; Jobless Claims Tick Down

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Consumer Spending
Sarah Bentham/AP
By Lucia Mutikani

WASHINGTON -- U.S. consumer spending rose less than expected in May, likely held back by weak health care spending, which could prompt economists to temper their second-quarter growth estimates.

The Commerce Department said Thursday consumer spending increased 0.2 percent after being flat in April. Spending, which accounts for more than two-thirds of U.S. economic activity, had been forecast rising 0.4 percent.

When adjusted for inflation, consumer spending fell for a second straight month, suggesting spending this quarter could struggle to regain momentum after growing at its slowest pace in nearly five years in the first quarter.

Spending in May was probably constrained by weak health care spending as outlays on services barely rose for a second month. Spending on automobiles surged, accounting for more than half of the rise in durable goods outlays.

U.S. Treasury debt prices rose on the data while the dollar trimmed gains.

Reports on employment to manufacturing and the services industries suggest the economy has rebounded after sinking in the January-March period, but the spending data indicated that growth would probably fall short of expectations.

"The consumer spending number is not enough of an acceleration to give confidence to large second-quarter GDP rebound numbers," said Alan Ruskin, global head of G10 foreign exchange strategy at Deutsche Bank (DB) in New York.

Second-quarter growth estimates have ranged as high as a 4 percent annual pace. The economy contracted at a 2.9 percent pace in the first quarter, the worst performance in five years.

In a separate report, the Labor Department said new applications for state unemployment benefits slipped 2,000 to a seasonally adjusted 312,000 for the week ended June 21.

The declining claims suggest a recent streak of payroll job gains above 200,000, is likely to be sustained, lending the economy enough momentum for inflation to start perking up.

Inflation Ticking Up

A price index for consumer spending increased 0.2 percent in May, rising by the same margin for a third consecutive month.

In the 12 months through May, the personal consumption expenditures price index was up 1.8 percent, the largest gain since October 2012. It had advanced 1.6 percent April and should comfort Federal Reserve officials concerned about price pressures being too low.

Excluding food and energy, prices also posted a 0.2 percent gain. That followed a similar increase in April. The so-called core PCE price index increased 1.5 percent from a year ago.

That was the biggest increase since February last year and followed a 1.4 percent rise in April.

Both inflation measures still remain below the Fed's 2 percent inflation target.

Inflation, which has been depressed by weak medical care costs and sluggish wage growth, is being watched for clues on the timing of the central bank's first interest rate hike.

The Fed, which is scaling back the amount of money it is pumping into the economy through monthly bond purchases, has kept its benchmark lending rate near zero since December 2008.

Consumer Spending Ticks Up; Jobless Claims Tick Down
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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