US consumer spending stalls in May

WASHINGTON ( Reuters) – US consumer spending growth ground to a halt in May as auto purchases flagged, while confidence ebbed to a six-month low in June, the latest signs of trouble for the economy.

Although manufacturing activity in the Midwest picked up this month, it offered little cheer for an economic recovery that has been hit by turbulence from the debt crisis in Europe and a lack of clarity on the course of fiscal policy at home.

“We are at a stall speed expansion here,” said Tim Quinlan, an economist at Wells Fargo in Charlotte, North Carolina. “We have a consumer who is sort of losing steam.”

Spending was unchanged in May, marking the first time in six months it had not risen, the Commerce Department said on Friday. It also lowered its gauge of April’s spending to show a rise of just 0.1 percent.

The weak data prompted economists to lower forecasts for second-quarter economic growth. Goldman Sachs trimmed its estimate to an annual pace of 1.6 percent from 1.7 percent. That would mark a slowdown from the first quarter’s already anemic 1.9 percent pace.

The change in the economy’s fortunes – most visible in a sharp deceleration in job growth and manufacturing activity – closely mirrors the pattern seen last year and poses a challenge for President Barack Obama ahead of November’s election.

With the outlook darkening, consumer morale has tumbled. The Thomson Reuters/University of Michigan’s sentiment index fell to 73.2 in June from 79.3 in May, a separate report showed.

The drop came even though gasoline prices have fallen about 51 cents from their April peak, slowing inflation sharply. A price index for consumer spending fell 0.2 percent in May, the first decline in a year.

But even when adjusting for inflation, spending rose a scant 0.1 percent last month, the same as in April.

“The consumer is under pressure from the weak jobs market and falling gas prices are simply not enough,” said Paul Edelstein, an economist at IHS Global Insight in Lexington, Massachusetts.

But the economy is not collapsing. A third report showed factory activity in the Midwest ticked up in June, with manufacturing employment rising to its highest level since February. New and unfilled orders, however, edged down.

“Things are not spiraling down out of control,” said Dean Maki, chief economist at Barclays in New York.

The reports had little impact on US financial markets, with investors focused on developments in Europe.

Euro zone leaders agreed to allow a rescue fund to be used to pump money directly into the region’s banks.