Stimulus checks lift spending

The US economic stimulus package, which mailed out about $50 billion in checks in April and May, provided a lift to income and consumer spending last month, the government said, and left economists arguing over whether the good news would stick.

Without the stimulus, however, income levels would have risen only slightly, and wage growth again failed to keep pace with inflation.

Consumer spending increased 0.4 percent in May, double the gain in April, after adjusting for inflation. Without that adjustment, the increase was 0.8 percent in May, the biggest gain since November, the Commerce Department reported.

The spending increase came as welcome news to the Bush administration, which proposed the package, and lawmakers who said the stimulus payments could help prevent a prolonged recession.

"We've only started to scratch the surface of the effect on spending," said Dean Maki, chief US economist at Barclays Capital in New York. Maki said he expected spending to continue to accelerate.

Other economists were more skeptical, arguing that the stimulus provided temporary gains that would quickly dissipate.

Joshua Shapiro, the domestic economist for the research firm MFR, said he expected a bigger increase in spending, given the size of the stimulus. "You pump out $50 billion in a couple months' time, and there ought to be some noticeable impact," he said. The 0.4 percent increase, he added, "was not a huge one if you think about how much money was pumped out."

Discounting the stimulus checks, after-tax income grew 0.4 percent in May, after adjusting for inflation, the government said. That follows a 0.2 percent rise in April and no change in March. Including the checks, income grew 1.9 percent, and after-tax income jumped 5.3 percent.

But many Americans actually earned less in May, in terms of real dollars. Wages and salaries grew 0.3 percent after falling 0.1 percent in April, but inflation jumped 0.4 percent.

The rise in inflation was slightly slower in May. Prices were 3.1 percent higher in May than a year ago, a notch down from the 3.2 percent annual increase recorded in April.

The data reinforces the warnings about inflation that were issued by Federal Reserve policymakers in the last few weeks. The Fed has recently signaled a shift in focus to fighting inflation, and the central bank decided to hold interest rates steady this week.