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Gas savings, job gains drive spending surge, analysts say

Julian Fojon-Losada, of Georgia, checks a coconut at a fruit store June 9 in the Little Havana area of Miami. The Commerce Department released its May report on consumer spending Thursday. (Associated Press)
Josh Boak Associated Press

WASHINGTON – U.S. consumer spending surged in May with the biggest monthly increase in nearly six years – a sign of stronger economic growth ahead.

The Commerce Department said Thursday consumer spending rose 0.9 percent last month, up from a revised 0.1 percent increase in April. May spending registered the biggest gain since August 2009, when the government’s “cash for clunkers” program fueled auto-buying.

The increased spending last month suggests the positive impacts from solid hiring and cheaper gasoline are starting to ripple through the economy.

“We are finally seeing signs of consumers beginning to spend the gasoline savings they have been sitting on since the start of this year,” said Paul Ashworth, chief U.S. economist at Capital Economics.

Personal income also increased a healthy 0.5 percent. The savings rate for after-tax income fell slightly to 5.1 percent from 5.4 percent.

Until recently, lower gas prices and an improved job market were not enough to unlock greater consumer spending. Instead, Americans ramped up their savings. This helped put their personal finances on a more sustainable path, but it limited the ability of the overall economy – which relies mostly on consumer activity – to grow at a faster pace and potentially boost their incomes.

The consumer spending report confirms signs elsewhere that people are loosening the grip on their wallets.

Retail sales climbed 1.2 percent between May and April, led by auto dealers, clothiers and building materials stores, the Commerce Department reported earlier this month.

Spending at retailers is up 2.7 percent over the past 12 months. This includes annual gains of 8.2 percent in both the auto and restaurant categories.

All of that could lead to more hiring, a tighter supply of job applicants and larger pay hikes, economists say.

Consumer spending may be aided by two major factors:

• Americans are saving money at the pump. Gasoline costs have stabilized in recent weeks. At a national average of $2.78 a gallon, they remain about 90 cents below their average a year ago, according to AAA’s Daily Fuel Gauge Report.

• Also, the economy has added 3.1 million jobs over the past year. The influx of paychecks generally leads to additional spending by the newly employed.