American household spending is boosting economic growth with an increase of 0.9 percent in May, the greatest gain witnessed in the past six years.
American consumers are increasingly propping up economic growth. The U.S. Commerce Department released a report on Thursday, stating that spending spiked by 0.9 percent, resulting in the highest gain witnessed since August 2009.
A cohort of factors led up to this spectacular increase indicative of economic growth stabilization. Due to the low unemployment rates, the spike in job creation and the stabilizing prices at the pump, consumer sentiment is reaching a new high.
Beginning of the year reports indicated that U.S. citizens had a more cautious outlook on spending, preferring to save up rather than venture into unnecessary spending. The next few months lightened the outlook with steady increases experienced in U.S. hiring, payrolls, and home values.
For Fed policy makers the lack of stock inflation related to the increase in household spending comes as good news. It is a sign that the interest rates will slowly be raised perhaps come September as previous accounts estimated.
Jacob Oubina who is a senior U.S. economist of the RBC Capital Markets LLC commented for Bloomberg:
“We’re clearly seeing a nice acceleration on the part of the consumer. It comes down to job growth and better income prospects. It’s going to be a decisive rebound this quarter”.
American household spending increased 0.2 above the median forecast of 0.7 provided by 75 economists surveyed by Bloomberg.
Paycheck increase across the U.S. weighs in heavily in the spending increase. Income spiked by 0.5 percent for a second month consecutively in May. This represents the greatest back-to-back gain in the past year or more if we look at the U.S. Commerce Department report.
From another point of view, disposable income climbed 0.2 percent from April to May, after inflation adjustment. Over the past year, disposable income increased by 3.5 percent.
As consumers feel more confident, they tend to spend more. Yet, the gain in income does not equal the spending power, therefore, the saving rate witnessed in the beginning of the year dropped from 5.4 percent to 5.1 percent over April to May.
Consumer confidence got a boost as household finances improved and prices gas pump prices are stabilizing after a constant advance of 40 cents per gallon since April.
Job growth and the increase in home prices are also raising U.S. consumer confidence and boosting economic growth.
Image Source: Telegraph
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