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According to a Commerce Department report, May household spending ticked 0.9 percent, which is the largest gain in more than five years.
Additionally, other official estimates show that U.S. companies are firing less people than a decade ago, while the consumer sentiment is slowly rebounding as gas prices began to stabilize.
US consumers see larger gains in paychecks, more job opportunities and new prospects in purchasing a home of their own, which combined with a low inflation led to last month’s increase in demand. Low inflation may also mean that the Fed may soon start to hike its benchmark interest rate to levels that are healthier for economic growth.
Economists believe that this quarter would experience a “decisive rebound” of the economy as consumer sentiment seems to have come back to its senses amid job prospects and hopes for better income.
As of Wednesday, the S&P 500 stock market index sank below its average 50-day level as energy shares abruptly depreciated. At NYSE, the S&P 500 dropped 0.3 percent to 2,102.31 at the close.
But last month’s spending was higher than expected since analysts estimated that it would not exceed 0.7 percent. Economists explained that one of the motives – and the most crucial – why people now go shopping is bigger paychecks. The commerce Department reported that incomes saw another increase in May (by 0.5 percent) after April’s gains. Experts said that the May results show the largest consecutive gain in more than 12 months.
On the other hand, spending rose higher than earnings did with a saving rate slipping from 5.4 a couple of months ago to 5.1 in May. Economists believe that the newly-found optimism triggered by better job prospects may make Americans forget about saving for bad days.
Labor Department figures are also positive. According to the federal data, those applying for unemployment insurance payments are less than 300,000, which usually signals a strong labor market. But unemployment rose by 3,000 early this month to 271,000. Yet jobless claims were 262,000 two months ago, which is the lowest level in more than a decade.
“Companies are holding onto their employees very tightly, and it shows a strong need for labor. That implies very positive trends for job growth in the months and quarters ahead,”
noted Russell Price, analyst at Ameriprise Financial Inc.
Payrolls also rose last month, while unemployment ticked to 5.5 percent from 5.4 percent in April. The labor Department said it would issues a detailed report on June statistics next Thursday.
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