WASHINGTON (Reuters) -
Consumer spending jumped last month
as stimulus checks boosted household budgets and pushed the
saving rate to the highest level since 1995, but another report
released on Friday showed confidence took a hit.

Commerce Department data showed U.S. personal spending rose
by a greater-than-expected 0.8 percent in May, while a key
gauge of inflation remained muted.

Some economists said the stronger spending would double the
pace of U.S. growth in the second quarter from what they had
been predicting before the data. However, there is a big
question mark over whether this will be sustainable.

These concerns were reinforced a short while later by the
Reuters/University of Michigan Surveys of Consumers, which hit
another 28-year low in June of 56.4 from May's 59.8 reading. It
also showed elevated household expectations for inflation.

The Federal Reserve stepped up its warnings on inflation on
Wednesday when it halted a powerful interest rate cut campaign,
which has slashed rates by 3.25 percentage points to 2 percent
since September to shield U.S. growth from a housing slump.

Personal spending -- under scrutiny as a barometer of how
consumers behaved as they received a fiscal boost of $48
billion in May amid a cooling economy -- had been expected to
increase 0.6 percent, according to analysts polled by Reuters.

The rise was the largest increase in personal spending
since November, and compared with a 0.4 percent rise in April.
Economists at JPMorgan Chase & Co promptly doubled their
forecast for second-quarter U.S. growth to 2 percent.

The Fed hopes consumer spending will hold up once the tax
rebate checks have been cashed. But some economists fear the
economy will shift down in the third and fourth quarters as
this support fades away.

GROWTH SPURT

"While the economy appears to be showing more strength than
we had anticipated in the current quarter, there is likely to
be a more powerful payback over the next couple of quarters,"
Morgan Stanley economists wrote in a note to clients.

The investment bank now forecasts 1.6 percent growth in the
second quarter, twice what it had penciled in before the
release.

The Commerce Department said personal income advanced 1.9
percent in May, the largest gain since September 2005, and
followed a 0.3 percent increase the month before.

Disposable income jumped 5.7 percent in May, the biggest
increase since May 1975, thanks in large part to the stimulus
checks. The Commerce Department said that without that boost
disposable personal income would have been up 0.4 percent.

Americans also saved much more than they had in years, with
the personal saving rate jumping to 5 percent last month, the
highest reading since March 1995.

"We had very strong consumer spending, but most of the tax
rebates went into savings, which might mean that they are going
to stay there," said Pierre Ellis, senior economist at Decision
Economics in New York.

The government's Economic Stimulus Act, rushed into law as
an emergency measure to prevent a collapsing housing market
from toppling the economy into a recession, will deliver an
extra $107 billion to American households this year.

The bulk of the money arrived from the end of April onward
and will begin to dry up by the middle of July. The Treasury
said that so far, it has sent out payments totaling slightly
more than $79 billion.

The overall price index for consumer spending rose 0.4
percent in May after a 0.2 percent gain the month before.

Excluding volatile food and energy prices, the core price
index, which is the Fed's preferred measure of inflation, edged
up by 0.1 percent. This compared with a forecast for a 0.2
percent rise, after an 0.1 percent April increase.

U.S. government Treasury bonds took heart from the subdued
inflation reading despite record oil prices.

"The deflator data was relatively friendly for bonds. The
core PCE is still a little bit above the Fed's comfort zone,
but it has held steady for the past several months," said Kim
Rupert, global fixed income analyst at Action Economics LLC.

The Reuters/University of Michigan Surveys of Consumers
made less comfortable reading. It showed five-year inflation
expectations remained steady at the peak of 3.4 percent reached
in May, which was the highest in 13 years.

(Additional reporting by Ellen Freilich; Editing by
Jonathan Oatis)

Source

WASHINGTON (Reuters) -
Consumer spending jumped last month
as stimulus checks boosted household budgets and pushed the
saving rate to the highest level since 1995, but another report
released on Friday showed confidence took a hit.

Commerce Department data showed U.S. personal spending rose
by a greater-than-expected 0.8 percent in May, while a key
gauge of inflation remained muted.

Some economists said the stronger spending would double the
pace of U.S. growth in the second quarter from what they had
been predicting before the data. However, there is a big
question mark over whether this will be sustainable.

These concerns were reinforced a short while later by the
Reuters/University of Michigan Surveys of Consumers, which hit
another 28-year low in June of 56.4 from May's 59.8 reading. It
also showed elevated household expectations for inflation.

The Federal Reserve stepped up its warnings on inflation on
Wednesday when it halted a powerful interest rate cut campaign,
which has slashed rates by 3.25 percentage points to 2 percent
since September to shield U.S. growth from a housing slump.

Personal spending -- under scrutiny as a barometer of how
consumers behaved as they received a fiscal boost of $48
billion in May amid a cooling economy -- had been expected to
increase 0.6 percent, according to analysts polled by Reuters.

The rise was the largest increase in personal spending
since November, and compared with a 0.4 percent rise in April.
Economists at JPMorgan Chase & Co promptly doubled their
forecast for second-quarter U.S. growth to 2 percent.

The Fed hopes consumer spending will hold up once the tax
rebate checks have been cashed. But some economists fear the
economy will shift down in the third and fourth quarters as
this support fades away.

GROWTH SPURT

"While the economy appears to be showing more strength than
we had anticipated in the current quarter, there is likely to
be a more powerful payback over the next couple of quarters,"
Morgan Stanley economists wrote in a note to clients.

The investment bank now forecasts 1.6 percent growth in the
second quarter, twice what it had penciled in before the
release.

The Commerce Department said personal income advanced 1.9
percent in May, the largest gain since September 2005, and
followed a 0.3 percent increase the month before.

Disposable income jumped 5.7 percent in May, the biggest
increase since May 1975, thanks in large part to the stimulus
checks. The Commerce Department said that without that boost
disposable personal income would have been up 0.4 percent.

Americans also saved much more than they had in years, with
the personal saving rate jumping to 5 percent last month, the
highest reading since March 1995.

"We had very strong consumer spending, but most of the tax
rebates went into savings, which might mean that they are going
to stay there," said Pierre Ellis, senior economist at Decision
Economics in New York.

The government's Economic Stimulus Act, rushed into law as
an emergency measure to prevent a collapsing housing market
from toppling the economy into a recession, will deliver an
extra $107 billion to American households this year.

The bulk of the money arrived from the end of April onward
and will begin to dry up by the middle of July. The Treasury
said that so far, it has sent out payments totaling slightly
more than $79 billion.

The overall price index for consumer spending rose 0.4
percent in May after a 0.2 percent gain the month before.

Excluding volatile food and energy prices, the core price
index, which is the Fed's preferred measure of inflation, edged
up by 0.1 percent. This compared with a forecast for a 0.2
percent rise, after an 0.1 percent April increase.

U.S. government Treasury bonds took heart from the subdued
inflation reading despite record oil prices.

"The deflator data was relatively friendly for bonds. The
core PCE is still a little bit above the Fed's comfort zone,
but it has held steady for the past several months," said Kim
Rupert, global fixed income analyst at Action Economics LLC.

The Reuters/University of Michigan Surveys of Consumers
made less comfortable reading. It showed five-year inflation
expectations remained steady at the peak of 3.4 percent reached
in May, which was the highest in 13 years.

(Additional reporting by Ellen Freilich; Editing by
Jonathan Oatis)

Source

NEW YORK (Reuters) -
Consumer confidence fell more than
expected in June, hitting another 28-year low as surging prices
and mounting job losses contributed to a bleak outlook,
according to a survey released on Friday.

The Reuters/University of Michigan Surveys of Consumers
said five-year inflation expectations remained steady at the
peak of 3.4 percent reached in May, which was the highest in 13
years.

Federal Reserve officials have focused on long-term
inflation expectations and the persistence of such pressures
heightens their dilemma -- whether to fight price growth or
support a weak economy in the grips of the worst housing slump
since the Depression of the 1930s.

The Surveys of Consumers said the final June reading for
its index of confidence fell to 56.4 from May's 59.8. The
report said the pace of consumer spending is likely to sink at
least through the start of 2009.

"Moreover, gas prices have risen to an all-time peak, food
prices posted the largest increases in decades, home prices
have fallen faster than any time since the Great Depression,
and there has been widespread distress associated with
foreclosures," the report added.

Also weighing on consumers, data earlier this month showed
U.S. employers shed jobs for a fifth straight month in May and
the unemployment rate jumped to 5.5 percent, its highest in
more than 3-1/2 years.

Economists had expected a reading of 57.0, according to a
Reuters poll. Their forecasts ranged from 55.9 to 60.0. The
final June result is slightly below the preliminary figure of
56.7 released on June 13.

"Overall, no new information, only confirmation of
prevailing weak sentiment," analysts at RBS Greenwich Capital
said in a note to clients about the report.

Financial markets showed little immediate reaction to the
report. Stocks were flat and the dollar was down against the
yen . Government bonds were higher on the day.

The June reading is the lowest since 51.7 in May 1980,
which was also the lowest reading ever. The index dates back to
1952, though the survey has been conducted since 1946.

One-year inflation expectations declined to a
still-elevated 5.1 percent from May's 5.2 percent. May's
one-year inflation expectations reading was the highest since
5.2 percent in February 1982.

The index of consumer expectations fell to 49.2 in June --
its lowest since May 1980. This was down from May's 51.1.

Meanwhile, the index of current personal finances fell to
69 in June -- the lowest on record -- from 80 in May.

(Editing by Jonathan Oatis)

Source