According to the Department of Commerce, consumer spending is on the rise for the second straight month in a row. The 0.4% increase in May follows a 1.1% jump in April, the largest positive change in over six years. The increased spending outpaced inflation, which rose only 0.2% over each of the last two months. After the release of the Department of Commerce’s consumer spending report, the Atlanta Federal Reserve raised its second-quarter estimates on consumer spending growth.
Consumer spending is a key economic indicator in the U.S. economy because it accounts for over two-thirds of economic activity. The measurement counts how much households are purchasing, accounting for everything from automobiles to food. High consumer spending demonstrates high consumer confidence in the economy. These increases come in concert with marginal gains to personal income. This metric rose 0.2% in May; this together with an annual income increase of 4.7% in 2015 could explain the increase in household spending.
This news, however, comes amid uncertainty within international markets. Millan Mulraine, deputy chief economist at TD Securities in New York remarked, “With the confidence-sapping eruption in global financial markets continuing to play out, we expect spending momentum to slow in the coming months ahead, adding a layer of uncertainty to the U.S. economic outlook going forward.”
Earlier this year GDP growth was an estimated 0.5% for the first quarter; however, the newest estimates are more than double that, at 1.1%. Economic indicators are not perfect, but high consumer confidence is a good sign for domestic economic growth going into the second half of the year.
Read more here: “U.S. consumer spending rises, Brexit casts shadow on outlook” (Lucia Mutikani, Reuters)