The numbers: Consumer spending rose a tepid 0.1% in May, but American households have shown little inclination to cut back much even in the face of rising interest rates and lingering talk of recession.
Analysts polled by the Wall Street Journal had forecast 0.2% increase in spending.
Incomes advanced 0.4% in May, the government said Friday.
Consumer spending is the main engine of the U.S. economy. Households boosted spending at a 4.2% annual pace in the first quarter to mark the biggest increase in two years.
Key details: A decline in oil prices means Americans are paying less at the pump to fill up. That helps to explain when spending was soft in May, but it’s a good thing for consumers.
Americans also spent less on cars last month as auto dealers cut prices from record highs or offered more incentives. The sales dip is likely temporary, however, with automakers on track for a big rebound in 2023.
Meanwhile, consumers spent more on airfare and continue to fly in large numbers, another sign they are confident in the economy.
Rising incomes and a slowdown in inflation are allowing households to save more. The savings rate rose to 4.6% from 4.3% and matched a one-and-a-half year high.
In 2022, the rate of savings had fallen to the lowest level since 2005.
The personal consumption expenditures index, the Federal Reserve’s preferred inflation barometer, increased a scant 0.1% in May.
See also: The rate of inflation slowed to 3.8% from 4.3% and touched the lowest level in more than two years.
Big picture: Rising interest rates and persistent inflation haven’t done much to dramatically slow the economy this year.
The economy grew at a solid 2% pace in the first quarter and could mimic that level of growth in the second quarter.
Americans are still buying lots of cars and spending on travel and recreation, the sort of purchases that point to a sturdy economy.
If the past is any guide, though, higher rates will eventually dampen consumer spending and business investment. Many economists still think the U.S. is headed toward a mild recession by next year.
Looking ahead: “Consumer performance is going to have to deteriorate dramatically to validate forecasts of a recession,” said chief economist Stephen Stanley of Santander Capital Markets.
Market reaction: The Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
rose in Friday trades.
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