Economic Recovery Revealed by US Spending

Encouraged by healthier pay packets, this trend is one more sign of economic recuperation for the second quarter. Signalling the most encouraging increase since August 2009, expenditure went up by 0.9 per cent, 0.2 per cent over Bloomberg forecasts. 

US consumers have not spent savings from the oil-price slump, a development that has confused the Fed and reinforced a growing sense that higher short-term interest rates may not be needed. On the other hand, corporates taking on more staff together with increasing sales in home and retail have caused some of that caution to evaporate over the last 30 days. 

Diane Swonk of Mesirow Financial in Chicago has said that economic growth will "be carried by gains in consumer spending and housing in the months to come [allowing] the Fed to achieve lift-off in September." Last week the Fed spoke positively about the state of the US economy, emphasising that temporary factors - the weather and strike action - were the root cause of a poor first quarter. 

Fed chair Janet Yellen also underlined policy makers' need for clearer cut signs of an economic rebound, if rates are to be pushed up. Furthermore, whether or not the economy can handle two rate increases in one year is up for debate on the Federal Open Market Committee. 

Expenditure on durable goods increased 2.3 per cent after dropping 0.1 per cent last month, with spending being lifted through car sales. Similarly positive reports fell for incomes, up 4.4 per cent from last year, a trend that illustrates how a stronger labour market is yielding healthier pay packets. 

According to Gus Faucher, an economist at PNC, consumer-spending increases can be attributed to increased hiring, higher wages, low interest rates and increased household wealth. Speaking to the Financial Time online, Mr Faucher said "It appears that households are also getting more comfortable spending some of the money that they have saved because of lower gasoline prices."