Highlights
Personal income and outlays slowed in May. Personal income rose 0.4 percent in May, following a 0.7 percent boost in April. The May gain was above the consensus expectation of a 0.2 percent rise. Personal consumption for May rose 0.4 percent, following a 0.7 percent increase in April. The consensus had expected a 0.4 percent rise in personal consumption for May.

Further showing slowing in the consumer sector was wages and salaries which was unchanged in May, following a 0.8 percent jump in April. Personal consumption was up 0.4 percent, following a 0.7 percent increase in April. Spending in May was led by non-durables and services, up 0.7 percent and 0.5 percent, respectively. Durables spending dropped 0.6 percent with weakness in auto sales. The personal savings rate slipped one tenth to minus 1.7 percent in May.

On the inflation front, the overall PCE deflator rose a strong 0.4 percent with the core PCE up a more moderate 0.2 percent. Year-on-year rates jumped four tenths to 3.3 percent for the overall PCE deflator, with the core rate unchanged at 2.1 percent. The core rate is still at the high end of trend and at the upper limit that Federal Reserve officials point to. While the monthly 0.2 percent rise in the core deflator for both May and April looks favorable to the markets, these numbers translate to annualized monthly gains of 2.4 percent and 3.0 for May and April, respectively - still on the high side.

Today's report indicates that the consumer sector has moderated somewhat in May while inflation continues under upward pressure. It is important to remember that May's softness follows a strong April and that one month does not make a trend. Overall, the consumer sector is still healthy and the question remains of how sustained the moderation will be and how quickly it will soften inflation. We will need to see a number of months of soft wages and salaries growth and spending gains before inflation expectations and actual inflation numbers come down.