Bloomberg News

WASHINGTON - U.S. personal spending rose in May, matching April's rise, which was the smallest gain in a year and a half, government figures showed Friday.

Personal consumption rose 0.2% in May, the Commerce Department said. The statistics suggest that consumer spending is cooling after rising in the first quarter at the fastest pace in 17 years.

"Consumers spent a lot in the first quarter, and they're taking a breather in the second," said Tim McGee, chief economist at Tokai Bank Ltd. in New York. Still, "Income growth has been good, and that should help sustain spending" in the months ahead, he said.

Incomes rose 0.4%, after a revised 0.6% gain in April. Analysts expected a 0.2% increase in May personal income, following a 0.7% rise previously reported for April. They also expected a 0.2% increase in spending, after a previously reported April gain of 0.4%.

The slowdown in consumer spending is a welcome sign for Federal Reserve policymakers intent on slowing the economy to stem inflation. The Fed's Open Market Committee has raised interest rates six times over the past year to 6.5%, the highest in nine years, to do just that.

Higher interest rates make it more expensive to finance large purchases, such as cars, homes, and furniture. Friday's report shows those increases are beginning to bear fruit. The Fed's panel held the line on interest rates at their meeting last week.

May spending on durable goods fell 1%, after a 0.7% April decrease. "The love affair with SUVs, new kitchens, and other big-ticket items seems to be waning," said Joel Naroff, president of Naroff Economic Advisors, Holland, Pa.

Spending on nondurable goods rose 0.2%, while spending for services increased 0.5% in May, Friday's figures showed.

Consumer spending, which constitutes about two-thirds of the nation's output of goods and services, has been the driving force of the economic expansion. In the first quarter spending increased at a 7.7% annual pace, Commerce Department figures showed Thursday.

Since the first quarter, shoppers have curbed spending amid higher gasoline costs, rising interest rates, and lower stock prices. General Motors Corp., McDonald's Corp., and Procter & Gamble Co. have warned recently that lower-than-expected sales will cut into profits.

Income was boosted by an increase in government wages tied to the temporary hiring for the 2000 Census. Private wages and salaries fell. Also, transfer payments surged as a result of legislation that allowed Social Security beneficiaries age 65 and older to receive full benefits regardless of their earnings.

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