US consumer spending was a bit weaker than expected in May, government data showed on Thursday, while a key inflation gauge held steady - good news for the Federal Reserve as it mulls another interest rate hike. Jobless claims were also lower than expected last week but the bond market concentrated on the inflation numbers ahead of an expected Fed decision to raise interest rates by another quarter percentage point, to 3.25 percent, later on Thursday.
The Commerce Department said personal income increased 0.2 percent, just beneath Wall Street forecasts for a 0.3 percent gain. That followed a 0.6 percent advance in April and was the weakest reading since January.
Consumer spending was flat, versus forecasts for an advance of 0.1 percent, after a 0.6 percent increase in April.
The price index for consumer expenditure, a measure of inflation favoured by Fed Chairman Alan Greenspan, was also unchanged after rising 0.4 percent in April.
"As the economy strengthened, companies got a little more pricing power, but not enough to push inflation up substantially," said Gary Thayer, chief economist at A.G. Edwards & Sons in St. Louis.
Investors are on alert for higher prices after energy costs spiked and as the Fed meets to consider monetary policy.
Stripping out the volatile effect of food and energy prices, the core PCE price index advanced 0.2 percent as expected after gaining 0.1 percent in April. It now stands 1.6 percent higher than May 2004.
Excluding inflation and taxes, real disposable income rose 0.1 percent or at the same pace as the previous month, the Commerce Department said.
Employment growth disappointed in May with just 78,000 new jobs created but analysts expect more than twice that this month. A decline in the latest jobless claims data also pointed towards more good news on the labour market front.
The number of Americans seeking initial jobless compensation unexpectedly fell by 6,000 last week to the lowest level in more than two months, the Labour Department said in a separate release.
The closely watched four-week moving average also fell for the second consecutive week, dropping to 323,500 from 333,750 in the previous week.