Instant view: Consumer spending, savings rise in May

NEW YORK (Reuters) - Consumer spending rose slightly more than expected in May even as savings touched their highest level in eight months, a government report showed on Monday.

KEY POINTS: * The Commerce Department said spending edged up 0.2 percent after being flat in April. Analysts polled by Reuters had expected consumer spending to rise 0.1 percent. * Consumer spending is being closely watched to gauge the strength of the economic recovery after the government lowered estimates for the first quarter, holding back gross domestic product growth during that period. * A government report on Friday showed consumer spending, which normally accounts for 70 percent U.S. economic activity, rose at a 3 percent pace in the January-March quarter -- slower than the 3.5 percent the government had estimated last month.

COMMENTS:

JULIA CORONADO, SENIOR ECONOMIST, BNP PARIBAS, NEW YORK:

SPENDING - "It was largely as expected. What the picture is for the consumer is that the consumer is spending but at a relatively moderate pace.

"We saw the savings rate tick back up to four percent so that seems to be where the consumer is at a four percent saving rate. They used some of their increased income in May to push back up the saving rate rather than accelerate consumer spending. It's still a conservative consumer. Things are on track but it's not a consumer that is ready to throw caution to the wind and spend with wild abandon. It's still a consumer that's looking for bargains and allocating their dollars very carefully.

INFLATION- "That was a bit of a surprise and it looks like it's coming from some of the imputed prices that are in this PCE index as opposed to the CPI index. I wouldn't want to put too much weight on that upside surprise. I think still the bigger picture is that we're seeing a decelerating inflation trend."

PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK:

"The personal income number was good, showing a fairly solid increase in wage and salary income which needs to happen to sustain an economic recovery, but we don't know month to month whether it will be sustained. Personal spending was a little on the strong side which is good to see, but it's still very very slow. The price index is a little firmer than expected which is good news nowadays and the year on year increase picks up as well. Doves on the FOMC will not see this as a permanent shift, but the tendency toward deflation is arrested for the moment."

ZACH PANDL, U.S. ECONOMIST, NOMURA SECURITIES, NEW YORK:

"The biggest surprise was the firmness in the core PCE deflator -- the Fed's preferred inflation gauge. It's showing a little bit less sign of disinflation.

"1.3 percent is not an uncomfortable level for the core PCE deflator. It suggests that perhaps there are less deflation risks in the economy than investors previously thought.

"I think that -- if these sort of results -- if the core PCE deflator stabilizes at this level, that would be in my opinion inconsistent with current Treasury yields."

SUBODH KUMAR, CHIEF INVESTMENT STRATEGIST, SUBODH KUMAR & ASSOCIATES, TORONTO:

"No big surprises to move the market in one way or another.

"The data looks in line with a moderate consumer, neither cautious nor expansionary."

MARKET REACTION: STOCKS: U.S. stock index futures turn negative BONDS: U.S. Treasury debt prices pare gains slightly DOLLAR: U.S. dollar holds gain against the euro