households increased spending in the first quarter at the fastest pace in two years the numbers consumer spending rose a tepid 01 in may but american households have shown little inclination to cut back much even in the face of rising interest rates and lingering talk of recession analysts polled by the wall street journal had forecast 02 increase in spending incomes advanced 04 in may the government said friday consumer spending is the main engine of the us economy households boosted spending at a 42 annual pace in the first quarter to mark the biggest increase in two years key details a decline in oil prices means americans are paying less at the pump to fill up that helps to explain when spending was soft in may but its a good thing for consumers americans also spent less on cars last month as auto dealers cut prices from record highs or offered more incentives the sales dip is likely temporary however with automakers on track for a big rebound in 2023 meanwhile consumers spent more on airfare and continue to fly in large numbers another sign they are confident in the economy rising incomes and a slowdown in inflation are allowing households to save more the savings rate rose to 46 from 43 and matched a oneandahalf year high in 2022 the rate of savings had fallen to the lowest level since 2005 the personal consumption expenditures index the federal reserves preferred inflation barometer increased a scant 01 in may see also the rate of inflation slowed to 38 from 43 and touched the lowest level in more than two years big picture rising interest rates and persistent inflation havent done much to dramatically slow the economy this year the economy grew at a solid 2 pace in the first quarter and could mimic that level of growth in the second quarter americans are still buying lots of cars and spending on travel and recreation the sort of purchases that point to a sturdy economy if the past is any guide though higher rates will eventually dampen consumer spending and business investment many economists still think the us is headed toward a mild recession by next year looking ahead consumer performance is going to have to deteriorate dramatically to validate forecasts of a recession said chief economist stephen stanley of santander capital markets market reaction the dow jones industrial average and sp 500 rose in friday trades this content was created by marketwatch which is operated by dow jones  co marketwatch is published independently from dow jones newswires and the wall street journal