U.S. Core PCE Price Inflation Strengthens in May; Real Spending Eases as Income Weakens

The PCE chain price index rose an expected 0.1% during May, the same as in April. The y/y rise, however, edged up to 2.3% following 2.2%. Energy prices declined 1.0% (-4.6% y/y) after rising 0.5% in April, while food prices rose 0.2% (2.0% y/y) following a 0.3% decline. The price index excluding food & energy rose 0.2%, after two straight 0.1% increases. Its y/y change of 2.7% last month followed April’s 2.6%. The y/y gain, nevertheless, remained near the slowest since March 2021, down from a 5.6% high in September 2022.

Durable goods prices held steady (+0.5% y/y) in May, after rising 0.5% in April. Home furnishings & appliance prices increased 0.6% (0.7% y/y), after increasing 0.4%. Motor vehicle & parts prices slipped 0.1% (+0.5% y/y), after no change in April. Recreational goods & vehicle costs eased slightly (-0.1% y/y) after strengthening 1.5% in April.

Prices of nondurable goods rose 0.1% (-0.2% y/y) last month after falling 0.1% in April. Lower gasoline & other energy prices held back the overall change and declined 2.2% (-12.0% y/y), after easing 0.3% in April. Clothing prices eased 0.4% (-1.1% y/y) after holding steady in April. Other nondurable goods prices rose 0.7% (1.5% y/y) after edging 0.1% higher.

Services prices rose 0.2% (3.4% y/y) in May, after rising 0.1% in April. Housing & utility prices rose 0.3% (4.3% y/y) after a 0.4% gain, and services prices excluding energy & healthcare gained 0.2% higher (3.7% y/y), after holding steady in April. Healthcare prices edged 0.1% higher (2.2% y/y), after a 0.2% gain. The cost of financial services & insurance eased 0.2% (+5.0% y/y) after falling 0.8% in April. Recreation services costs fell 0.3% (+3.5% y/y), following a 0.7% April decline. Transportation prices improved 0.1% (3.4% y/y), after rising 0.4% in April, while hotel & restaurant prices rose 0.3% (3.0% y/y), the same as in April.

Personal consumption expenditures (PCE) eased 0.1% (+4.5% y/y) in May, after a 0.2% rise in April. The decline compared to expectations for a 0.2% increase in the Action Economics Forecast Survey. When adjusted for price changes, PCE fell 0.3% in April (+2.2% y/y) after increasing 0.1% in April.

Real spending on durable goods declined 1.8% (+3.8% y/y) in May, after declining slightly in April. Real spending on motor vehicles declined 6.0% (+4.0% y/y), after a 1.6% rise. Real outlays on furnishings & appliances eased 0.3% (+4.3% y/y) last month following a 0.3% decline. Real spending on recreational goods & vehicles increased 0.6% (4.0% y/y) last month, after falling 2.0% in April. Spending on “other” durable goods jumped 1.3% (1.8% y/y) after rising 0.8% in April.

Nondurable goods spending in real terms edged 0.3% lower (2.5% y/y) in May after edging 0.1% higher in March. Real clothing & footwear purchases rebounded 1.4% (5.1% y/y) last month, following a 0.4% April decline. Real food & beverage purchases were off 0.3% (+1.4% y/y) and reversed the 0.2% rise in the prior month. Real outlays on gasoline & other energy products declined 2.6% (-2.9% y/y), after rising 1.7%. Real spending on “other” nondurable goods slipped 0.2% (+4.2% y/y) last month, following a 0.3% decline during April.

Real spending on services was roughly steady (+1.8% y/y) last month, following a 0.1% April improvement. Real spending on housing & utilities rose 0.1% (1.1% y/y) in May, after rising 0.2%, while real health care spending rose 0.2% (4.5% y/y) after rising 0.3%. Real spending on food services & accommodations declined 1.0% (+0.5% y/y), after no change in April. Real spending on financial services & insurance fell 0.2% (+2.3% y/y) after rising 0.5%. Real spending on transportation services fell 0.5% (-1.1% y/y) in May, after edging 0.2% lower in April. Recreation spending improved 0.7% (0.2% y/y), the same as in April. A 0.1% slip (+2.7% y/y) in spending on “other” services followed a 0.3% April decline.

Personal income fell 0.4% (+4.5% y/y) after 0.7% gain. A 0.3% gain was expected. Wages & salaries rose 0.4% (4.7% y/y), the same as in April. Rental income declined 0.4% (+3.9% y/y), after easing slightly in April. Proprietors’ income tumbled 2.3% (2.5% y/y), following a 1.2% strengthening. Income from assets fell slightly (+1.1% y/y), after falling 0.5%, and current transfer receipts declined 2.2% (+7.5% y/y) following a 2.5% April rise. Government social benefits weakened 2.3% (+7.4% y/y) in May.

Disposable personal income decreased 0.6% (+4.1% y/y) during May following a 0.8% April rise. After adjusting for price changes, disposable income fell 0.7% (+1.7% y/y) after rising 0.6% in April.

The personal saving rate fell to 4.5% in May, after rising to 4.9% in April. It still stands well above low of 3.5% in December of last year. Personal saving fell 8.8% (-3.9% y/y) in May, after surging 12.8% in April.

The personal income and consumption figures are available in Haver’s USECON database with detail in the USNA database. The Action Economics forecasts are in AS1REPNA.