Consumer Spending and Home Sales Were Up in May

WASHINGTON — Americans 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 on Thursday that consumer spending rose 0.3 percent last month, nearly erasing a decline of similar size in April. Income rose 0.5 percent.

Consumers, benefiting from low inflation, spent more at retail businesses in May, notably for cars, home improvements and sporting goods.

In another bright spot, the number of people who signed contracts to buy homes in the United States jumped in May to the highest level in more than six years, a sign home sales will probably rise in the months ahead.

The National Association of Realtors said Thursday that its seasonally adjusted index for pending home sales rose 6.7 percent to 112.3 last month. That is the highest level since December 2006. Signed contracts have risen 12.1 percent in the last 12 months.

The increase could reflect an effort by potential buyers to complete deals before mortgage rates rise further. Mortgage rates rose in May and then jumped after the Federal Reserve chairman, Ben S. Bernanke, suggested last week that the Fed could slow its bond purchases later this year.

The increase points to healthy gains in home sales in the coming months. There is generally a one- to two-month lag between a signed contract and a completed sale.

The activity report should provide comfort as it shows that housing is still holding on, said Jennifer Lee, an economist at BMO Capital Markets.

Still, rising rates could weigh on demand later this year. The average rate on a 30-year mortgage soared this week to 4.46 percent, the highest in nearly two years, according to a report Thursday by the mortgage giant Freddie Mac. But rates are still low by historical standards.

“Despite the rise in mortgage rates and house prices, housing affordability will still be well above its long-term average,” said Joseph LaVorgna, an economist at Deutsche Bank.

Article source: http://www.nytimes.com/2013/06/28/business/economy/consumer-spending-and-home-sales-were-up-in-may.html?partner=rss&emc=rss