(D) Much of the hope for continued improvement of the economy lies in consumer spending that is projected to increase this year.

This is INCORRECT because while it's close to the intended meaning, it's still not quite there. This sentence is saying that people are putting their hope in ONLY the part of consumer spending that increases - not ALL consumer spending increasing. Since that's not really what we're going for, let's rule this out.

(E) Much of the hope for continued improvement of the economy lies in increase in consumer spending that is projected for this year.

This is CORRECT! It's clear that people are putting their hope in an all-around increase in consumer spending, which we know from the rest of the sentence is likely to happen this year.