Dive Brief:
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Consumer spending rose 0.4% in May, with spending growing 1.1% in April, the Commerce Department said Wednesday.
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Personal income rose 0.2% in May, compared to April’s 0.5% increase. Meanwhile, inflation remains muted, with the personal consumption expenditures (PCE) price index, excluding food and fuel, increasing 0.2% in May and April, according to the report.
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Several economists boosted their gross domestic product estimates for the quarter. Macroeconomic Advisers raised its estimate by two-tenths of a percentage point to 2.8%; Barclays raised its estimate to 2.8% from 2.5%; Amherst Pierpont Securities raised its estimate to 3.1% from 2.7%; and the Federal Reserve Bank of Atlanta’s GDPNow increased to 2.7% from 2.6%, details the Wall Street Journal.
Dive Insight:
Retailers have reason to smile as American consumers continued their healthy shopping this spring, which bodes well for the economy. After being missing from the economic picture for several quarters, wage gains are finally emerging, though that tempered last month; the savings rate in May was 5.3%, down from 6% in March.
First-quarter growth was 1.1% at a seasonally adjusted annual rate, according to the Journal.
Still, the stock market is taking a heavy toll from uncertainty in Europe after the so-called Brexit vote, which is expected to dampen spending in future months as consumers face uncertainty about its effect on the U.S. economy. Economists expect Brexit could subtract an average of two-tenths of a percentage point from U.S. growth over the next six quarters, Reuters reports. With this uncertainty, plus signs that American businesses are beginning to hold back hiring, some economists fear a slowdown.
“Pressure on corporate profit margins will result in increasingly aggressive cost-cutting measures which will impinge on the pace of job growth, and thus the consumer is unlikely to be able to sustain a significant ‘engine of growth’ role for very much longer,” Joshua Shapiro, chief U.S. economist at MFR, told the Wall Street Journal.
