Consumer confidence edged higher in May, following gains in spending and income the previous month, according to reports released Tuesday. But consumers' outlook for the rest of the year worsened, which will likely temper the economic recovery, analysts said.
The Conference Board said Tuesday that its consumer confidence index rose to 109.8 this month from a revised 108.5 in April. While the number of consumers rating the present economy as good increased, their outlook on business conditions and jobs for the next six months soured slightly.
"The numbers don't point to any risk that the recovery is going to peter out. They do point to a rate of growth in the economy that has slowed," said Mark Vitner, an economist at Wachovia Securities.
Still, consumer spending remains strong. The Commerce Department reported Tuesday that Americans increased their spending by 0.5 percent in April, on top of a 0.3 percent gain the month before. Those gains came as incomes -- including wages, interest and government benefits -- rose 0.3 percent in April.
In a third report, sales of existing homes shot up to a seasonally adjusted annual rate of 5.79 million in April, a 7 percent increase over March's level, according to the National Association of Realtors. April's performance marked the third-highest monthly sales pace on record.
Although the confidence and spending figures were slightly weaker than analysts' expectations, economists said they believe consumers will continue to spend in the months ahead -- although probably at a slower pace -- and help along the recovery.
Consumers, whose spending accounts for two-thirds of all economic activity in the US, especially splurged last month on big-ticket items, such as cars. Low interest rates and discounts on a range of costly manufactured goods continue to motivate buyers.
The consumer confidence index compares results to its base year, 1985, when it stood at 100. May's figure of 109.8 falls slightly below the seven-month high of 110.7 reached in March after confidence tumbled following the Sept. 11 attacks. Consumers expecting more jobs to become available in the next six months fell to 13.7 percent from 14.8 percent in April, the Conference Board said. Meanwhile, fewer consumers -- 20.6 percent vs. 21.1 percent in April -- expected their incomes to increase in the next six months.
Federal Reserve Chairman Alan Greenspan has warned that the recovery could be less than sizzling because consumers, who kept buying throughout the slump, might not have a lot of pent-up demand coming out of it.
Citing uncertainties about the vitality of the recovery, the Fed earlier this month decided to leave short-term interest rates unchanged at 40-year lows.
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