UPDATE 1: US consumer spending recovers; income sinks

(Add report details)

By Lucia Mutikani

WASHINGTON, June 26 (Reuters) – US consumer spending rebounded by the largest amount on record in May, but earnings are unlikely to be sustainable as revenue will decline and is expected to decline further. more as millions lose their unemployment checks starting next month.

The Commerce Department said on Friday that consumer spending, which accounts for more than two-thirds of US economic activity, increased 8.2% last month. That was the biggest increase since the government began following the series in 1959. Consumer spending fell a record 12.6% in April.

Economists polled by Reuters had forecast that consumer spending would rise 9.0% in May. The increase in spending last month reflected the reopening of many companies after closing in mid-March to control the spread of COVID-19.

Consumers stepped up purchases of motor vehicles and recreational items. They also increased spending on health care and in restaurants, hotels, and motels.

But personal income fell 4.2%, the most since January 2013, after rising a record 10.8% in April, when the government issued $ 1,200 one-time checks to millions of people and increased benefits. unemployment to cushion the difficulties of COVID-19.

The payments are part of a nearly $ 3 trillion historical tax package. The drop in income last month reflected a decrease in government welfare payments related to the pandemic.

The government will stop paying an additional $ 600 a week in unemployment benefits on July 31.

Consumer spending in May was financed with savings, which lowered the savings rate to a still high 23.2% from a record 32.2% in April.

Inflation remained weak last month, with the Personal Consumption Expense Price Index (PCE) excluding volatile food and energy components rising 0.1% after falling 0.4% in April. In the 12 months to May, the so-called PCE basic price index rose 1.0%, matching April’s profit.

The PCE core index is the Federal Reserve’s preferred measure of inflation. The US central bank has an inflation target of 2%.