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Ahead of the Bell: US consumer spending

June 26, 2014

WASHINGTON (AP) — The Commerce Department reports on how much U.S. consumers spent and earned in May. The report will be released at 8:30 a.m. EDT Thursday.

SPENDING UP: The forecast is that consumers increased their spending 0.4 percent in May, matching a 0.4 percent income gain, according to a survey of economists by data firm FactSet.

FURTHER GAINS: In April, consumers cut back on spending for the first time in a year but only after spending surged in March by the most in four years. The overall trend points to a spring economic rebound.

Consumer spending is closely watched by economists because it accounts for about 70 percent of the country’s economic activity.

The government reported Wednesday that overall economic growth, as measured by the gross domestic product, shrank at an annual rate of 2.9 percent in the January-March quarter. That’s the biggest drop since the depths of the recession five years ago.

But analysts said the big dip reflected temporary facts such as harsh winter weather that cut into consumer and business activity. In addition, businesses cut back on restocking and companies reduced their spending on new equipment and the trade deficit significantly worsened.

Analysts see all those trends reversing in the current quarter and they expect growth to rebound between 3.5 percent and 4 percent. They are forecasting the economy will keep forging ahead in the second half of the year with growth around 3 percent as consumer spending is aided by strong gains in employment, rising consumer confidence and gains in the stock market and home prices which will make people feel wealthier and thus more willing to spend.

Economists are watching to see what the Fed’s preferred measured of inflation, an index tied to consumer spending, does in coming months. At a meeting last week, Fed officials expressed no concerns about a recent slight uptick in inflation. In an updated economic forecast, they predicted the inflation index tied to consumer spending would rise between 1.5 percent and 1.7 percent this year, still below the Fed’s target of 2 percent.

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