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May Consumer spending disappointingly weak

WASHINGTON -- U.S. consumers stepped up their spending only modestly in May, a disappointment to economists who said the weaker-than-expected gain will likely mean less of an economic rebound in the April-June quarter.

Spending rose just 0.2 percent last month after no gain in April, the Commerce Department said Thursday. The two months followed a robust spending surge of 0.8 percent in March.

Income rose a solid 0.4 percent in May after a 0.3 percent April gain.

The 0.2 percent gain in spending was just half the increase that analysts had been expecting and some said unless June shows a very large gain, spending may not provide as much support to the economy in the second half as they had been expecting.

Paul Dales, senior U.S. economist at Capital Economics, said that consumer spending may end up rising at an annual rate of 1.7 percent in the April-June quarter which he said “wouldn't be much of a rebound” from the sluggish 1 percent growth in consumer spending in the first quarter.

Consumer spending is closely watched because it accounts for 70 percent of economic activity.

Dales said that strength in other areas should still lift overall economic growth to around 3 percent in the current quarter, a much better showing than the 2.9 percent drop in economic output in the first three months of the year.

Jennifer Lee, senior economist at BMO Capital Markets, agreed that the spending figure was pointing to economic growth of around 3 percent in the second quarter, instead of the 3.8 percent she had forecast.

An inflation gauge that's closely monitored by the Federal Reserve has risen 1.8 percent over the past 12 months through May, the fastest rise since late 2012 but still below the Fed's 2 percent target.

In May, spending on durable goods jumped 0.7 percent, a rebound after having fallen 0.9 percent in April. In May, auto dealers reported their best sales month in nine years, helped by brisk demand for SUVs and pickup trucks.

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