Personal Income And Spending Slow

Personal income as well as personal spending slowed in May at the same time that price data remained quiet. Income rose at the low end of expectations, up only 0.2 percent, while spending showed a little life, up 0.4 percent.

The PCE core price index rose only 0.2 percent with the year-on-year rate unchanged and still below the Fed's 2 percent target at 1.6 percent. Overall prices also rose 0.2 percent with the year-on-year rate dipping 2 tenths to only plus 0.9 percent.

Details on income show only a 0.2 percent rise in wages & salaries, down from April's outsized 0.5 percent gain. With income growth stalling, consumers may have tapped into their savings slightly to fund May's spending as the savings rate edged 1 tenth lower to 5.3 percent for the lowest rate of the year. Details on spending show gains concentrated in nondurable goods where price effects for gasoline and energy are inflating the totals. Spending on durable goods, despite a solid rise in vehicle sales during May, rose a soft 0.3 percent. Service spending was respectable with a 0.4 percent gain.

The spending side of May's report isn't robust though it was robust in April, revised in fact 1 tenth higher to a recovery best 1.1 percent. When adjusted for inflation, the two months combined show an annualized growth rate of about 4 percent which, with June's results still pending, will support a jump in second quarter GDP.

But based on trends including May's results, April may very well prove to be an outlier for spending. April aside, today's report is consistent with moderate economic growth and does not point, especially with the uncertainty of Brexit in play, to a Fed rate hike anytime soon.

Recent History Of This Indicator:
Personal spending proved exceptionally strong in April and another month of strength is expected for May with forecasters calling for a 0.4 percent increase. Personal income is also expected to post a meaningful gain, of 0.3 percent. Meaningful gains, however, are not expected for the core PCE price index where the consensus is calling for only a 0.2 percent increase.