US consumer confidence fell less than expected during May and incomes rose in May, increasing chances the economy will pick up in the second half.
"We're optimistic that the consumer is going to hang in there," said Stephen Stanley, senior market economist at Greenwich Capital Markets in Greenwich, Connecticut.
Stocks completed the biggest first-half decline in more than three decades amid investigations of WorldCom Inc, Global Crossing Inc and ImClone Systems Inc That performance led to concern among economists that consumers, responsible for two-thirds of the economy, may rein in spending.
Damage was limited. The reading of 92.4 in the University of Michigan's index of consumer sentiment, compared with 96.9 in May, beat forecasts. Incomes rose 0.3 percent, the sixth straight increase, the Commerce Department said. Chicago-area executives say manufacturing expanded during June.
While consumer spending declined 0.1 percent in May, by the government's gauge, that followed a 0.6 percent increase in April.
Rising incomes increase the likelihood that spending will again rise.
Wal-Mart Stores Inc, the world's largest retailer, says its sales this month will be up as much as 7 percent from a year earlier. Family Dollar Stores Inc intends to open 575 stores in the fiscal year that begins Sept. 1, the discount chain reported this week.
The drop in the Michigan index is the second in the last three months and compares with a low of 81.8 in September, when terrorists attacked New York and Washington. Recent news about corporate accountability problems, which have contributed to declines in stocks, may have weighed on confidence this month. The index is based on a phone survey of about 500 households.
The university's current conditions index, which reflects Americans' perception of their financial situation, fell to 99.5 this month from 103.5 in May.
A separate index of expectations, based on optimism about the next one to five years, fell to 87.9 from 92.7.
The Conference Board's confidence index, which is based on a survey of 5,000 households from June 1 through the start of last week, fell to 106.4 from 109.8.
Signs of an improving labor market may underpin confidence and spending. The number of US workers filing new claims for state unemployment benefits fell for the fourth time in six weeks as companies hold the line on firings.
That was reflected in today's report on incomes and spending.
Disposable income, or the money left over after taxes, increased 0.3 percent in May for a second straight month. Wages and salaries rose 0.4 percent after no change in April.
The personal savings rate was 3.1 percent in May, up from 2.8 percent in April. The indicator weighs current income from wages, salaries, businesses and government payments against spending. It doesn't account for borrowed money, income from investments, or withdrawals from prior savings.
The drop in spending was the first since a 0.3 percent decline in November.
Purchases of durable goods such as autos, appliances, and other big-ticket, long-lasting items, adjusted for inflation fell 2.4 percent in May after a 0.5 percent rise in April, today's report showed. The 15.7 million vehicle sales pace in May was the slowest since May 1998, according to Autodata Corp. Sales slumped 12 percent at both General Motors and Ford as the automakers dropped no-interest loans in favor of cash rebates.
Spending on non-durable goods was unchanged after rising 0.1 percent. Spending on services, which account for half of the report, increased 0.6 percent after rising 0.1 percent in April.
While manufacturing grew in the industrial Midwest, the pace was slower in June than in May.
The National Association of Purchasing Management-Chicago said its factory index fell to 58.2 this month from 60.8 in May.
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