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Economy in Brief

U.S. Personal Spending Stabilizes as Income Declines in May
by Tom Moeller  June 25, 2021

• Goods spending continues to weaken; services strengthen.

• Increase in core prices hits twenty-year high.

• Total take-home earnings again fall sharply.

Personal consumption expenditures held steady during May (18.9% y/y) following a 0.9% April increase, revised from 0.5%. A 0.4% rise had been expected in the Action Economics Forecast Survey. Adjusted for price inflation spending declined 0.4% (+14.5% y/y) after rising 0.3% in April. The decline in real outlays reflected a 4.3% drop (+25.2% y/y) in spending on durable goods. The decline was paced by an 8.5% weakening (+24.0%) in spending on motor vehicles & parts after rising 2.8% in April. Home furniture & appliances purchases weakened 3.4% (+19.9% y/y) in May after falling 1.4% in April. Spending on recreational goods & vehicles also fell 2.2% (+16.0% y/y) after a 1.5% April weakening. Nondurable goods spending eased 0.5% (+12.1% y/y) for a second consecutive month. Real clothing spending weakened 1.0% (+48.6% y/y) after a 1.5% fall. Food & beverage sales fell 0.8% (+4.2% y/y) after weakening 0.9% while spending on gasoline rose 2.3% (21.1% y/y) after gaining 1.0%. Working 0.4% higher (13.3% y/y) were real outlays on services after a 0.6% April rise. Recreation services outlays surged 3.2% (90.6% y/y), the fifth month of strength in the last six. Restaurant & hotel spending strengthened 1.0% (56.0% y/y), also the fourth month of strong increase in the last five months. Transportation service outlays improved 0.2%, up by roughly one-third y/y, after a 0.9% decline. Real health care outlays improved 0.2% (18.7% y/y) last month and housing & utilities spending improved 0.2% (1.0 % y/y).

The PCE chain price index increased 0.4% (3.9% y/y) last month following two straight months of 0.6% increase. The price index excluding food and energy improved 0.5% (3.4% y/y) after strengthening 0.7%. Durable goods prices rose 1.6% (6.7% y/y) while nondurable costs edged 0.1% higher (4.6% y/y). Services prices rose 0.3% (3.1% y/y) following two straight months of 0.5% rise. Energy prices were roughly steady (27.4% y/y). Food & beverage prices rose 0.3% (0.4% y/y) after a 0.4% gain.

Personal income weakened 2.0% (+2.8% y/y) after falling an unrevised 13.1% in April. A 2.8% decline had been expected. Transfer payments fell 11.7% (-22.3% y/y) following April's 41.2% decline after the issuance $1,400 federal government stimulus payments in March. Wages & salaries strengthened 0.8% (13.8% y/y). Along with payroll employment, it was the third straight month of strong growth. Proprietors' income surged 2.7% (30.2% y/y), the fifth straight month of strong gain. Rental income rose 0.8% (4.3% y/y) for the third straight month. Earnings on assets rose 0.4% (0.9% y/y) as dividend income rose 0.5% (-0.3% y/y) and interest income improved 0.3% (1.8% y/y). Disposable personal income fell 2.3% (+1.5% y/y) last month after weakening 14.6% in April. Adjusted for price inflation, disposable income fell 2.8% (-2.3% y/y) after falling 15.1% in April.

The personal savings rate declined to 12.4% in May from 14.5% in April. The rate reached a record high 33.7% in April of last year. The level of personal saving fell by roughly one-half y/y in May.

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.

Personal Income & Outlays (%) May Apr Mar May Y/Y 2020 2019 2018
Personal Income -2.0 -13.1 20.9 2.8 6.3 3.9 5.3
  Wages & Salaries 0.8 1.0 1.0 13.8 0.7 4.7 5.0
Disposable Personal Income -2.3 -14.6 23.4 1.5 7.2 3.7 5.8
Personal Consumption Expenditures 0.0 0.9 5.0 18.9 -2.7 3.9 4.9
Personal Saving Rate 12.4 14.5 27.6 24.7 (May '20) 16.4 7.5 7.8
PCE Chain Price Index 0.4 0.6 0.6 3.9 1.2 1.5 2.1
  Less Food & Energy 0.5 0.7 0.4 3.4 1.4 1.7 2.0
Real Disposable Income -2.8 -15.1 22.8 -2.3 6.0 2.2 3.6
Real Personal Consumption Expenditures -0.4 0.3 4.4 14.5 -3.9 2.4 2.7
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