U.S. Consumers Cautiously Raise Spending; Price Inflation Ramps Up

Personal consumption expenditures rose 0.2% during May (3.7% y/y) following no change in April, revised from the 0.1% dip reported last month. A 0.4% rise had been expected in the Action Economic Forecast Survey. When adjusted for price inflation, however, spending slipped 0.1% (+1.9% y/y), the second consecutive down month. Nominal spending was restrained by a 0.4% decline (+3.5% y/y) in housing & utilities purchases. Health care outlays rose a modest 0.2% for a second month. The y/y rise of 2.9% in health care outlays was off the 3.8% pace of last year and the roughly 4.5% gains of the prior two years. In constant dollars, health care spending was unchanged for the second consecutive month and was reduced versus the 1.3% year-to-date rise. Nominal spending on durable goods increased 0.7% (3.9% y/y) and recovered most of a 0.9% April decline. A 2.3% rebound (7.2% y/y) in motor vehicle purchases led the increase. Spend on furnishings and appliances rose 0.4%, though the annual gain of 2.9% was lower than the 4%-6% pace of the prior three years. Nondurable goods spending increased 0.2% (3.6% y/y), half the prior month's increase. A 0.6% decline (+1.0% y/y) in clothing purchases and a 0.3% drop (+1.6% y/y) in spending on food & beverages held back the increase.

Price inflation continued to firm last month as indicated by a 1.8% y/y rise in the PCE chain price index. That compares to a 0.8% y/y low in February and a 1.1% rise for all of last year. The latest was the third consecutive 0.2% monthly increase (1.8% y/y) in the price index. Faster growth in core prices powered the overall index with a 1.5% y/y rise. That's versus a 1.1% y/y low in February and 1.2% during all of last year. The May gain was the third consecutive 0.2% increase and followed eight consecutive months of 0.1% rise. Energy prices increased 5.8% y/y while food costs gained 2.1% y/y. Services prices surged 2.2% y/y, the quickest pace since mid-2012. Most categories strengthened but none more than housing & utilities where the price index increased 3.0% y/y, double the 2001 low. Nondurable goods prices gained 2.4%, up from a 0.5% y/y decline just three months ago. The acceleration was wide-spread. Declines in durables goods prices have been fairly stable at a 2.1% rate.

Personal income increased 0.4% during May (3.5% y/y) after a 0.3% April rise. The gain was fueled by a 0.4% increase (3.8% y/y) in wages & salaries which followed a 0.3% gain. Rental incomes increased a firm 0.4% (5.6% y/y) for a second straight month while proprietors income rose 0.2% (2.3% y/y). Earnings from portfolio investments was improved as dividend income gained 1.2% (6.6% y/y), strong for the fourth straight month. Interest income increased a moderate 0.3% (1.9% y/y) for the second consecutive month. Transfer payments increased a firm 0.4% (3.9% y/y), although social security payments only ticked 0.1% higher (4.4% y/y). Disposable personal income gained 0.4% (3.7% y/y) for the second consecutive month. Adjusted for price inflation, take-home pay rose 0.2% (1.9% y/y) for a second consecutive month

The strength in income versus the moderate spending rise pulled the personal savings rate up to 4.8%, its highest level since August. The improvement occurred as savings rose 6.5% (4.0% y/y).

The personal income & consumption figures are available in Haver's USECON and USNA databases. The consensus expectation figure is in the AS1REPNA database.