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US Consumer Spending Up 0.3 Percent In May

By MARTIN CRUTSINGER

WASHINGTON (AP) â¿¿ U.S. consumers spent more in May as their income rose, encouraging signs after a slow start to the year. But spending was weaker in April, February and January than previously estimated.

The Commerce Department said Thursday that consumer spending rose 0.3 percent last month, nearly erasing a similar decline in April. Income rose 0.5 percent.

At the same time, economists said the downward revisions to spending for three of the first four months of the year signal weaker growth in the April-June quarter, which ends this week.

Paul Dales, senior U.S. economist at Capital Economics, said he thinks growth has slowed in the second quarter at an annual rate of just 1.5 percent. That's down from his previous forecast of a 2 percent rate. Economists at Barclays have cut their forecast from an annual rate of 1.8 percent to a sluggish rate of 1.4 percent.

Tepid growth could keep the Federal Reserve from scaling back its bond purchases later this year. Chairman Ben Bernanke spooked investors last week when he said the Fed will likely slow its bond-buying this year if the economy continues to strengthen. But Bernanke added that if the economy weakens, the Fed won't hesitate to delay its pullback or even step up its bond purchases again.

The bond purchases have helped keep interest rates low.

Dales also noted that the inflation gauge the Fed watches most closely has dropped to a record low of 1.1 percent, well below the Fed's 2 percent target. When inflation falls too low, the Fed normally keeps rates low to try to boost prices.

Economists are hopeful that growth will pick up in the second half of the year, and some recent data have been encouraging. Consumers, benefiting from low inflation, spent more at retail businesses in May, notably for cars, home improvements and sporting goods.

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