Personal Income rose and spending increased

Personal income rose 0.4% in May as wage income rose 0.5%. Real disposable income also gained 0.5% in the month and has increased 5.6% at an annual rate over the last three months.

Consumer spending increased 0.2% in nominal terms and by 0.3% when adjusted for inflation. The level of real PCE in April and May stands 2.8% at an annual rate above the first-quarter average. The personal savings rate picked up to 4.0% in May from 3.8% in April.

BOTTOM LINE

Real PCE is tracking a similar-sized increase in the second quarter to that seen in the first quarter. This fairly solid (around 3%) gain in real consumer spending is being outpaced by increases in income and the savings rate has risen to the highest level in eight months. Although private payroll gains have been only moderate, longer workweeks and higher wages are driving personal incomes and we expect this will sustain consumer spending in the months ahead. The Fed’s preferred inflation measure from this report is running ahead of the core CPI but remains benign.

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