U.S. consumer spending in May rose for the first time since February as government stimulus measures boosted income, while a consumer sentiment index in June edged higher, bolstering the view that the economy was close to emerging from recession.
Consumer spending, which accounts for more than 70 percent of U.S. economic activity, rose 0.3 percent in May after an upwardly revised flat reading in April, the Commerce Department said on Friday.
Personal income, on the other hand, jumped 1.4 percent last month, propped by social benefit payments from the government's massive economic stimulus. April's income gain was revised upward to 0.7 percent.
U.S. stocks were lower as a jump in savings to a record level boosted worries the economic recovery will not make much headway if consumers save rather than spend. Treasuries largely shrugged off data while the dollar extended losses versus the euro as the strong data reduced safe-haven demand for the greenback.
Though consumption is positive, it's kind of a tepid rebound versus the huge bounce back everyone was expecting. So we have to see if this is stabilization, said Doug Roberts, chief investment strategist at Channel Capital Research in Shrewsbury, New Jersey.
The government programs are new, we really have no history on it, and the rules tend to be changing as well. Right now we're on new ground with a lot of this, at least in the short-term.
The stimulus provided for one-time payments of $250 to people receiving Social Security, supplemental security income, and other benefits.
Data also showed savings jumped to a record annual rate of $768.8 billion, the highest level since records began in 1959. The saving rate climbed to 6.9 percent, the highest since December 1993.
CONSUMER SENTIMENT RISES
Mirroring the rise in personal spending and income, U.S. consumer confidence improved in June to the highest since February 2008, a survey showed on Friday.
The Reuters/University of Michigan Surveys of Consumers said its final index of confidence for June was at 70.8 from 68.7 in May, equaling February 2008's reading. This was above economists' median expectation for a reading of 69.0, according to a Reuters poll.
The index of consumer expectations edged lower, though, to 69.2 in June from 69.4 last month.
Over the past four months, sentiment has improved moderately, suggesting that consumers' attitudes about the economy are improving, said Steven Wood, chief economist, at Insight Economics in a research note.
However, they remain very cautious. Nevertheless, these data do suggest consumers are no longer shell shocked.
Since the November 2008 low of 55.3, the sentiment index has gained 15.5 points, recouping about one-third of the loss posted since the peak in January 2007.
Such a sizable gain has usually indicated that an end to the economic downturn is on the horizon, as consumers begin to increase their spending on houses, vehicles, and large household durables, the Reuters/University of Michigan Surveys of Consumers said in a statement.
The survey, however, warned this expected recovery won't be accompanied by strong bursts of spending, with consumers intent on rebuilding their reserve funds and pension accounts and significantly paying down their debt.
Consumers' assessment of the 12-month economic outlook fell to 69 in June from 75 the previous month, reflecting persistent worries about the future.
Meanwhile, their one-year inflation expectations rose to 3.1 percent in June, the highest since October 2008, from May's reading of 2.8 percent.
(Additional reporting by Mark Felsenthal; Editing by Neil Stempleman)