U.S. consumer spending rose less than expected in May as motor vehicles remained scarce while higher prices forced cutbacks on purchases of other goods, another sign that the rebound in economic growth early in the second quarter was losing steam.
Though the report from the Commerce Department on Thursday suggested inflation had probably peaked, price pressures remained strong enough to keep the Federal Reserve on its aggressive monetary policy tightening path. Nevertheless, Fed officials should welcome cooling demand.
There were also downward revisions to data going back to January, showing a softer growth profile for spending this year. Stocks on Wall Street were lower. The dollar was steady against a basket of currencies. U.S. Treasury prices rose.The U.S. central bank this month raised its policy rate by three-quarters of a percentage point, its biggest hike since 1994. The Fed has increased its benchmark overnight interest rate by 150 basis points since March.
The so-called core PCE price index advanced 4.7% on a year-on-year basis in May, the smallest increase since last November, after rising 4.9% in April. The PCE price indexes are the Fed's favored measures for its 2% inflation target. Consumer spending adjusted for inflation fell 0.4% in May, the first drop since December. That together with strong inventory accumulation in the first quarter, especially at general merchandise stores, poses a downside risk to economic growth in the second quarter. Growth estimates for this quarter range from as low as a 0.3% rate to as high as a 2.9% pace.
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