In May, income growth was moderate but spending was flat largely on a dip in auto sales with gasoline appearing to also weigh down. Inflation news is mixed. Personal income in May rose 0.3 percent, matching the gain the month before. The latest figure came in lower than analysts' expectation for a 0.4 percent advance. Wages & salaries increased a modest 0.2 percent, following a rise of 0.4 percent in April. This component was softened by no change in the government subcomponent.
Personal spending weakened in May, posting at no change, following a 0.3 percent boost the prior month. The median market forecast called for no change. By components, durables dropped 1.5 percent after no change in April. Nondurables dipped 0.3 percent, following a 0.2 percent rise the month before. Services gained 0.2 percent, following a 0.1 percent slip in April. Within PCEs, the drop in durables likely was related to shortages of autos dependent upon Japanese parts. The nondurables dip probably was due in large part to a decline in gasoline prices.
On the inflation front, the headline PCE price index eased to a 0.2 percent rise from 0.3 percent in April. However, the core rate edged up to 0.3 percent from 0.2 percent in April. The consensus projected a 0.2 percent rise for the core for the latest month.
On a year-ago basis, headline PCE inflation rose to 2.5 percent from 2.2 percent in April. Core PCE price inflation firmed to 1.2 percent on a year-ago basis from 1.1 percent in April.
Year on year, personal income growth for May printed at 4.2 percent, compared to 4.4 percent the month before. PCEs growth rose a year-ago 4.7 percent, down from 4.8 percent the prior month.
Today's personal income report adds to the "soft patch" scenario. Income is still growing but not at a strong enough pace for the latest month. And spending is flat. However, there are arguments that the softness is transitory. Improvement in employment would boost income. An easing of supply disruptions in the auto sector will likely lead a rise in durables spending. However, nondurables will likely be weighed down by additional near-term declines in gasoline prices.
Market Consensus before announcement
Personal income in April posted a 0.4 percent gain equaling the pace in March. Importantly, the key wages & salaries component increased 0.4 percent, following a boost of 0.3 percent in March. Spending looked healthy at face value but inflation was the underlying factor for the most part. Personal consumption expenditures expanded at a 0.4 percent pace in April after increasing 0.5 percent the month before. The headline PCE price index posted a 0.3 percent gain, down marginally from 0.4 percent in March but still strong. However, the core rate firmed to 0.2 percent from 0.1 percent in March. Looking ahead, the private wages & salaries component of personal income should be moderately strong as private aggregate weekly earnings gained 0.4 percent in May. Personal spending-at least the goods portion-will likely be negative as unit new motor vehicle sales fell 10.4 percent in May while retail sales excluding autos rose only 0.3 percent. PCE inflation should ease at the headline level as the CPI slowed to 0.2 percent from 0.4 percent in April. Core PCE likely will firm as the core CPI rose 0.3 percent in May, compared to 0.2 percent the month before.