U.S. Income Gained, Spending Slowed in May

Personal income growth remained solid while household spending slowed in May. Personal income increased 0.5% y/y (5.3% y/y), the same monthly rise as in April, which was revised up from the initially reported 0.4%. The May gain matched the expectation from the Action Economics Forecast Survey. Personal consumption expenditures edged up 0.2% m/m (8.5% y/y) in May following a downwardly revised 0.6% m/m increase in April (initially 0.9%). The Actions Economics Forecast Survey had looked for a 0.4% monthly increase. Adjusted for the change in prices, real PCE fell 0.4% m/m (+2.1% y/y) in May after a downwardly revised 0.3% m/m increase in April (initially 0.7%). This was the first monthly decline in real spending in five months.

In the spending details for May, a 1.6% m/m decline in spending on goods was the major factor behind the overall decline. Real spending on durable goods slumped 3.5% m/m led by an 8.2% m/m collapse in motor vehicle sales. Spending on nondurable goods slipped 0.6% m/m, which was widely spread across major categories. Real spending on services rose 0.3%, the same gain as in April. Monthly declines were posted in spending on housing and utilities, food services and accommodation, and financial services and insurance while spending on healthcare, transportation, and recreation increased. With the downward revisions for previous months and the decline in May, the April/May average of real PCE was up only 1.5% at an annual rate from the first quarter average, down from the 1.8% q/q saar advance in Q1. This points to another anemic quarter for consumer spending and likely sluggish GDP growth.

The PCE price index rebounded in May, rising 0.6% m/m (6.3% y/y) following a 0.2% m/m gain in April. The Action Economics Forecast Survey had expected a 0.7% monthly increase. Excluding volatile food and energy prices, the core price index increased 0.3% m/m (4.7% y/y), the same monthly increase as in February, March and April. The Action Economics Forecast Survey had looked for a slightly larger 0.4% m/m increase. This was the third consecutive month in which the annual core inflation rate has slowed—from 5.3% y/y in February. Prices of energy goods and services jumped up 4.0% m/m (+35.8% y/y) in May after having declined 2.8% m/m in April. Food prices continued to soar. They increased 1.2% m/m (11.0% y/y) in May, their fourth consecutive monthly increase of 1% or more.

The May rise in personal income was relatively widespread. Wages and salaries increased 0.5% m/m (11.0% y/y). Proprietors' income jumped up 1.5% m/m (4.4% y/y). Rental income gained 1.9% m/m (8.7% y/y). Income from assets rose 0.5% (3.7% y/y). By contrast, government social benefits fell 0.2% m/m (-6.6% y/y), mostly reflecting a 7.3% decline in unemployment insurance payments as unemployment continues to fall. Disposable income gained 0.5% m/m (2.8% y/y) in May. But after adjusting for price changes, it slipped 0.1% m/m (-3.3% y/y).

With nominal personal income rising more than nominal personal spending, the personal saving rate increased to 5.4% in May from an upwardly revised 5.2% in April (previously 4.4%). The level of personal saving has been falling over the past year or so as households have been spending the funds they had accumulated from the various federal government pandemic relief programs.

The personal income and consumption figures are available in Haver's USECON database with detail in the USNA database. The Action Economics figures are in the AS1REPNA database.