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Economy in Brief

U.S. Personal Spending Increase in May Sets Monthly Record; Income Declines
by Tom Moeller  June 26, 2020

• Spending rebound follows two sharp monthly declines.

• Personal income drop reflects lessened government support.

• Price inflation is minimal.

Personal consumption expenditures increased 8.2% during May (-9.3% y/y) following declines of 12.6% during April and 6.6% in March, revised from -13.6% and -6.9%. These shortfalls reflected business closures and government stay-at-home guidelines. An 8.7% increase had been expected in the Action Economics Forecast Survey. In constant dollars, total spending rebounded 8.1% last month (-9.8% y/y). Real durable goods spending jumped 28.4% (2.4% y/y) during May after falling 11.3% in April. Spending on motor vehicles rebounded by 37.5% (-0.1% y/y) after falling for five straight months. Home furniture & appliance buying surged 23.3% (1.9% y/y) and made up declines in the prior two months while recreational goods & vehicles outlays surged 24.3% (20.3% y/y) to a record high. Real nondurable goods buying increased 7.9% (-0.6% y/y) after declining 13.3% in April. The increase reflected a 43.5% surge (-22.6% y/y) in sales of clothing & shoes after two months of sharp decline. Gasoline & oil sales recovered 23.9% (-16.7% y/y) and made up for the prior month's weakness when driving was diminished. Food & beverage purchases rose 2.4% (7.9% y/y) after declining 14.2% in April. Real spending on services improved 5.2% (-14.3% y/y) after plunging a record 12.0% in April. The increase was led by a 23.7% rise (-22.7% y/y) in outlays on health care and a 20.3% increase (-36.6% y/y) in spending on transportation. Sales of recreation services improved 4.5% (-56.0% y/y) following two monthly declines totaling 58.7%. Spending at restaurants & hotels recovered 24.3% (-40.9% y/y) which came after a sharp reduction in the prior two months. These increases were tempered by a 0.2% slip (+1.7% y/y) in outlays on housing & utilities.

Personal income declined 4.2% (+7.0% y/y) after surging a little-revised 10.8% in April. A 5.7% decline had been expected. The decline reflected a 17.3% falloff (+68.6% y/y) in government transfer payments as economic impact payments slid 76.6%. Wages & salaries improved 2.7% (-5.7% y/y) after declining 7.6% and 3.7% in April & March, respectively, with the record reductions in employment. Proprietors income improved 2.8% (-10.9% y/y) after falling sharply for two straight months. Rental incomes improved 0.2% (2.8% y/y). Receipts on assets eased 1.4% (-3.7% y/y), due to roughly 1.5% declines in both personal interest & dividend income.

Disposable personal income declined 4.9% (+8.8% y/y) last month after rising 13.1% in April. Adjusted for price inflation, take-home pay decreased 5.0% (+8.2% y/y) after rising 13.6% in April.

Last month's strength in spending relative to income lowered the personal savings rate to 23.2% from the record 32.2% in April. The level of personal saving rose by 224.9% y/y.

The PCE chain price index edged 0.1% higher last month (0.5% y/y) after falling 0.5%. The price index excluding food & energy also rose 0.1% (1.0% y/y). Motor vehicle prices rose 0.5% (-2.3% y/y) and home furnishings & appliance prices improved 0.1% (-0.3% y/y). Apparel costs dropped 2.4% (-7.5% y/y). Gasoline & oil prices were off 3.6% (-33.6% y/y). Services costs improved 0.2% (1.8% y/y). Housing & utilities prices rose 0.2% (2.8% y/y) and health care prices edged 0.1% higher (2.2% y/y). Energy prices were off 1.7% (-18.5% y/y), the fifth straight monthly decline. Food prices rose 0.8% (4.5% y/y).

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 AS1REP NA database

Personal Income & Outlays (%) May Apr Mar May Y/Y 2019 2018 2017
Personal Income -4.2 10.8 -2.2 7.0 4.4 5.6 4.7
  Wages & Salaries 2.7 -7.6 -3.7 -5.7 4.7 5.0 4.7
Disposable Personal Income -4.9 13.1 -2.1 8.8 4.3 6.1 4.7
Personal Consumption Expenditures 8.2 -12.6 -6.6 -9.3 4.0 5.2 4.4
Personal Saving Rate 23.2 32.2 12.6 7.8 (May '19) 7.9 7.7 7.0
PCE Chain Price Index 0.1 -0.5 -0.2 0.5 1.4 2.1 1.8
  Less Food & Energy 0.1 -0.4 -0.1 1.0 1.6 2.0 1.6
Real Disposable Income -5.0 13.6 -1.8 8.2 2.9 4.0 2.9
Real Personal Consumption Expenditures 8.1 -12.2 -6.4 -9.8 2.6 3.0 2.6
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