Consumer Confidence, Spending Edge Up

Consumer confidence edged higher in May, but Americans’ expectations for the future fell for a second month, a private research report said Tuesday, providing more evidence that the recovery probably will slow in coming months.

Separately, the Commerce Department said consumer spending rose for a fifth straight month in April.

Overall, the reports showed that consumers probably will keep supporting the economy recovery until businesses begin investing and hiring again--what Federal Reserve officials want to see before considering boosting benchmark interest rates from four-decade lows of 1.75%.

American consumers power two-thirds of U.S. economic activity.

The Conference Board, a private research group, said its closely watched index of consumer confidence rose to 109.8 in May from a downwardly revised 108.5 in April. The index was mostly in line with analysts’ forecasts of a slight rise to 109 but below March’s reading of 110.7.

Americans expressed optimism about the current state of the economy’s recovery and labor market. The present situation index rose in May to 110.3 from 106.8 in April.

But it was the decline in the expectations index that many economists and investors focused on, sending U.S. stocks and the dollar lower.

The index fell for a second straight month, to 109.4 in May from 109.6 in April, weighed down in part by the stock market’s recent troubles.

The confidence report showed a decline in the six-month outlook for making new purchases and finding jobs.

Some economists said the drop in expectations signals that consumer spending remains dependent on interest-rate-sensitive sectors such as autos and housing, likely keeping the Fed from raising interest rates in coming months.

“This mediocre showing for the view of the future is somewhat disturbing as it suggests that the consumer may be tiring and that the current rate of consumption is being inflated by low interest rates,” said Drew Matus, financial market economist at Lehman Bros.

Still, consumer spending probably will stay close to the respectable 3.2% growth pace it posted in the first quarter, giving businesses leeway to start boosting investments as the economy recovers, with profits already improving, some economists said.

The Commerce Department said consumer spending rose 0.5% to a $7.32-trillion annualized rate in April after gaining 0.3% the previous month. Spending on durable goods--items designed to last three or more years, such as cars or washing machines--jumped 1.4%.

Personal income grew 0.3% in April, matching analyst expectations, compared with a 0.4% increase the previous month, the Commerce report said.

With inflation tame, the increase in incomes and improving labor market should help bolster consumer spending.

The report also showed inflation remains tame despite a slight tick higher in April. The personal consumption expenditures index, closely watched by Fed Chairman Alan Greenspan, rose 0.4%, the largest rise since 0.6% in October. The core rate, which strips out volatile food and energy prices, rose 0.2%.