U.S. Personal Spending Strength Is Bolstered by Firm Income Growth

Consumers are spending what they earn. Personal consumption expenditures jumped 0.9% during May following a 0.1% uptick in April, revised from a negligible decline. It was the largest monthly increase since August 2009 and beat expectations for a 0.7% rise in the Action Economics Forecast Survey. Adjusted for price inflation, personal spending improved 0.6%, the biggest monthly gain since last August. Real durable goods purchases jumped 2.3% (7.5% y/y), driven by a 2.3% advance (7.5% y/y) in spending on motor vehicles, following a 0.1% slip. Real furniture & appliance buying also rebounded 1.5% (6.7% y/y) after a 0.4% easing. Nondurable goods purchases in constant dollars improved 0.9% (3.2% y/y). Spending on gasoline recouped April's decline with a 3.8% jump (5.3% y/y). Real clothing purchases increased 1.8% (4.3% y/y) following declines in three of the prior four months. Services spending improved 0.2% in constant dollars (2.8% y/y). The rise was led by a 0.8% jump in spending on recreation (1.8% y/y) which followed a 1.3% gain.

Personal income matched expectations and improved 0.5% (4.4% y/y) for the second straight month. Wages & salaries also rose 0.5% (5.0% y/y), the strongest gain in three months. Rental income rose 0.8% (6.7% y/y) following a 0.7% April jump and proprietors income improved 0.8% (1.9% y/y), making up for weakness earlier in the year. Social security payments rose 0.5% (4.7% y/y) after a 0.3% rise while Medicare receipts gained 0.4% (3.4% y/y) following a 1.1% jump. To the downside, Medicaid payments declined 0.7% (+8.3% y/y) after a 0.5% easing and unemployment insurance receipts declined 1.9% (-14.5% y/y), off 6.7% this year.

Disposable income increased 0.5% (3.8% y/y) after a 0.4% rise. In real terms, disposable income gained 0.2% (3.5% y/y) after a 0.4% advance. The three-month rate of change deteriorated, however, to 1.6%, its lowest since early last year.

Last month's strength in spending outpaced the rise in income, thus reducing the personal savings rate to 5.1% which equaled this year's low point. Nevertheless, it's been trending higher since the 4.1% low in December of 2013. Personal saving rose a lessened 3.8% during the last twelve months.

The chain price index gained 0.3% (0.2% y/y) following no change during April. Energy prices jumped 4.7% (-16.8% y/y) while food prices eased 0.1% (+0.7% y/y). Durable goods prices eased 0.1% (-1.9% y/y) but nondurable goods prices jumped 1.0% (-3.0% y/y) with a 9.1% spurt (-23.8% y/y) in gasoline costs. Services prices improved 0.2% (1.7% y/y). The price index excluding food & energy edged 0.1% higher (1.2% y/y) for a second month.

The personal income & consumption figures are available in Haver's USECON database with detail in the USNA database. The consensus expectation figures are in the AS1REPNA database.