Data released today by the US Bureau of Economic Analysis indicated that consumer spending unexpectedly declined by 0.1% in May from a revised 0.3% growth in the previous month. Economists had forecast a rise by 0.1%.
Despite personal income rising by 0.3% in May, Americans were reluctant to increase their spending as they are being more cautious during uncertain economic times when unemployment is high. Meanwhile inflation is rising, as indicated by the Core PCE Index which rose to 1.2% compared to last May 201o where it was at 1.1%.
“The past increases in gas prices, not just the falling home values, are still weighing on consumers,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, said before the report. “Consumer spending has slowed sharply in the second quarter, and the economy can’t grow that fast if three-quarters of it is growing at a subdued rate.”
The US Federal Reserve announced last week that they will be ending their $600 billion bond purchase program by the end of June in an attempt boost the slowing US recovery.
According to a Bloomberg economist poll, consumer spending is expected to will grow an average 2.95 percent annual rate in the second half of 2011 after rising 2.1 percent this quarter.