Finance & Business World

Consumer spending probably rose in May by the most in six months as tax rebates enabled households to overcome soaring fuel bills, economists said before a report today.

The 0.7 percent increase followed a 0.2 percent rise in April, according to the median forecast of 72 economists surveyed by Bloomberg News. Another report may show consumer sentiment this month plunged to the lowest level since 1980.

After filling up their autos' gas tanks, Americans used the stimulus checks to buy electronics, clothes and furniture last month, helping to keep the economy expanding. At the same time, the slump in confidence, a loss of jobs and tighter credit raise the risk that growth will falter once the rebates' effect fades.

“Consumer spending will suffer around the turn of the year as the influence of fiscal stimulus disappears,'' said Stephen Stanley, chief economist at RBS Greenwich Capital Markets in Greenwich, Connecticut. The economy “may not accelerate much until early 2009.''

The Commerce Department's report is due at 8:30 a.m. in Washington. Estimates of the spending gain in the Bloomberg survey ranged from 0.1 percent to 1 percent. Incomes likely rose 0.4 percent in May after a 0.2 percent increase the prior month.

A report due at 10 a.m. from Reuters/University of Michigan may show the index of consumer sentiment fell to 56.7 in June, the weakest level since 1980, according to the survey median. The forecast matches a preliminary estimate issued on June 13 and would follow a reading of 59.8 in May.

Prices Rise

The spending report may also show that inflation accelerated. The Federal Reserve's preferred price gauge, known as the core measure because it excludes food and fuel, probably rose 0.2 percent last month after a 0.1 percent April gain, the median forecast showed.

Core prices in the 12 months ended in May probably climbed 2.2 percent, the biggest year-over-year increase since December 500 fast cash.

Fed policy makers this week kept the benchmark rate unchanged at 2 percent, ending a series of rate cuts, and said higher energy costs threatened to boost inflation. Still, they maintained a forecast that prices would “moderate'' later this year, according to their statement.

Policy makers also said that “although downside risks to growth remain, they appear to have diminished somewhat,'' partly as a result of “some firming in household spending.''

A Commerce report earlier this month showed retail sales rose more than twice as much as forecast in May. Private surveys indicate the spending splurge continued this month as discounters, including Wal-Mart Stores Inc. and Costco Wholesale Corp., offered rebate-linked promotions.

Rebate Total

About $70.8 billion worth of tax rebate checks were distributed through June 20, according to the Treasury Department.

There are signs the boost will not last. American Express Co. Chief Executive Officer Kenneth Chenault said this week that credit indicators have deteriorated beyond the company's expectations.

The rebates aren't large enough to benefit manufacturers like Brunswick Corp., the maker of Sea Ray yachts and Boston Whaler fishing boats. The Lake Forest, Illinois-based company said yesterday it plans to close four more North American plants and may fire as much as 10 percent of its workforce after U.S. powerboat sales fell to the lowest in more than 40 years.

Conditions in the energy, housing and labor markets “continue to erode U.S. consumers' confidence and are reducing their ability and desire to purchase discretionary items,'' Chief Executive Officer Dustan McCoy said in a statement.

Source