NEW YORK (Reuters) - U.S. consumer spending rose as expected in May while personal income posted a larger than expected jump, a government reports showed on Friday, as consumers spent government stimulus money.
KEY POINTS: * Consumer spending, which accounts for over 70 percent of U.S. economic activity, rose 0.3 percent after an upwardly revised flat reading last month. * It was the first gain in spending since February, a Commerce Department report said.
MARK VITNER, ECONOMIST, WACHOVIA, CHARLOTTE, NORTH CAROLINA:
”It is a big number on personal income -- that is the stimulus, the impact of the stimulus program that they put in. It boosted both personal income and disposable income a little bit more.
“This confirms our forecast that the economy is going to move into positive territory in the third quarter, because when you look at the personal consumption data we are probably still going to see a down quarter for the second quarter. It is going to end the second quarter on a high note which makes it very easy to grow in the third quarter.”
STEVE GOLDMAN, MARKET STRATEGIST, WEEDEN & CO., GREENWICH,
”I‘m surprised it moved as much as it did with income being up 1.4 percent. I‘m not sure how that’s being derived. It does seem a bit of a surprise and there might be something in the data, given the fact that we are in the throes of a recession, to see income up that much, I‘m not sure of that one. Initially it got the S&P moving into the plus side and now we’re kind of flattish once again. Something on the surface doesn’t jive with the economy at this juncture. Again, this data typically doesn’t move the market as well, so it had a minute or two with moving the market. The price data, in-line with the core we’re seeing just under the 2 percent range.
“For the markets we were more or less considered oversold, moving out of this oversold level. Still think we’re going to stay a bit choppy here. There was some buckling of the leadership the past couple of weeks, we’re up 12 out of 14 weeks so we may still spend some more time consolidating these recent gains.”
DOUG ROBERTS, CHIEF INVESTMENT STRATEGIST, CHANNEL CAPITAL
”Probably personal income was due to the increasing transfer payments coming from the government right now as you’re starting to see some of the stimulus kick in. But right now what you have to look at is, though consumption is positive, it’s kind of a tepid rebound versus the huge bounce back everyone was expecting. So we have to see if this is stabilization.
“Generally right now we’re into something new in terms of where we are, in other words we’re in a new area in terms of what’s going on. It’s not unusual for analysts to be off if you look at their track record, prediction is a very difficult business you look at the downturn last year, very few people predicted it. We’re being buffeted by a lot of different things that we don’t have the access to information to as well. The government programs are new, we really have no history on it, and the rules tend to be changing as well. Right now we’re on new ground with a lot of this, at least in the short-term.”
“The Treasury market’s gains may be from a feeling of relief that we are not seeing any kind of evidence that the consumer is ready to come back on track yet, with spending in line with consensus, and in the afterglow of this week’s successful auctions.”
”I think there will be a lot of attention to the spike in the savings rate, but I wouldn’t make too much of it at all. The rise in consumption was normal, but the rise in income was abnormally high because of government payments to people with the stimulus and social security, etc. You’re going to get a lot of commentary about the super-high savings rate, but the reason the rate was high was because of this abnormal burst of income at a rate that is clearly unsustainable. The rise in the savings rate isn’t reflective of any behavioral phenomenon
in the consumer. It is a one-month burst in income.
”The data may have an impact on the market, but these were not unanticipated umbers. The indicator forecasts have been consistent.
“There is neither any inflationary or disinflationary pressure right now. Prices are stable. The Keynesian stimulus spending appears to be playing its role in keeping the economy stable. Although I hate this metaphor, this is one more ‘green shoot.’ We’re seeing speculative money put to use at undervalued levels, and it will fuel further equity gains and put the dollar under pressure.”
MARKET REACTION: STOCKS: U.S. stock index futures initially rise BONDS: U.S. Treasury debt prices hold at little changed DOLLAR: U.S. dollar extends losses