Consumer Spending Rose 0.2% in May, Slowing Slightly but Remaining Strong
Washington, DC, June 30, 2022-Personal income increased $113.4 billion (0.5%) in May, according to the Bureau of Economic Analysis. Disposable personal income (DPI) increased $96.5 billion (0.5%), and personal consumption expenditures (PCE) increased $32.7 billion (0.2%).
Real DPI decreased 0.1% in May, and Real PCE decreased 0.4%; goods decreased 1.6% and services increased 0.3%. The PCE price index increased 0.6%. Excluding food and energy, the PCE price index increased 0.3%.
“U.S. household spending eased to its slowest pace this year in May as Americans faced historically high inflation with incomes that haven’t kept up with price increases,” reports the Wall Street Journal.
“U.S. consumers boosted their seasonally adjusted spending by 0.2% in May, a slowdown from the revised 0.6% increase in April, according to a Thursday report from the Commerce Department.
“Personal income grew by 0.5% in May, the same as April’s rate. Adjusted for inflation, after-tax income declined by 0.1% in May, showing that wage increases have been struggling to keep up with price rises. Inflation-adjusted spending declined by 0.4% in May, the first decline in real spending since December.
“U.S. gas prices have hit a record high and are showing no signs of going down. That’s largely because oil companies are no longer incentivized to drill more as oil prices rise. WSJ’s Dion Rabouin explains. Photo composite: Ryan Trefes
“The personal-consumption expenditures price index, an inflation gauge closely watched by the Federal Reserve, rose 6.3% in May from a year earlier, the same as April’s annual rate. Core inflation, which strips out volatile food and energy components, rose 4.7% in May on an annual basis and has been declining since February when it was 5.3%.
“Consumers have financed their purchases by saving less. In May, the saving rate rose modestly to 5.4%, after the rate fell to its lowest level in more than a decade in April. They are spending down the roughly $2 trillion in excess savings that accumulated during the height of the pandemic, when spending fell and government stimulus padded bank accounts.
“‘Consumers are spending above their normal levels, not because their incomes are well above normal levels, but because of their savings,’ said Tavis McCourt, institutional equity strategist for Raymond James. ‘My guess is by Labor Day most of this excess savings will be done.’
“Consumer habits are being closely watched as the Fed considers how far it will need to go with raising interest rates in order to tamp down inflation. High prices and the anticipated slowdown in economic activity because of the Fed’s actions have already led to the lowest-ever recorded level of consumer sentiment last week, according to the University of Michigan’s index. A sour mood among consumers bodes poorly for the U.S. economy’s prospects for avoiding a recession, given that household spending accounts for about 70% of U.S. economic output.
“Higher costs across the economy are changing consumer behavior. The number of diners at casual-dining restaurants fell around 3% in the three months ended June 12, compared with the previous year’s period, according to restaurant analytics firm Black Box Intelligence. Retail sales fell in May, their first decline of the year, as consumers rebalance their pandemic-era spending from goods to services, according to a separate Commerce Department report issued earlier in June.
“Still, spending by households and businesses hasn’t fallen off a cliff. Orders for long-lasting goods and the number of houses going under contract in the U.S. both rose last month, signs that demand is holding up even as the economy appears to be cooling.
“Consumers are especially pulling back for products whose prices have risen most rapidly, like gasoline. In the first full week of June, gasoline sales by volume at U.S. stations were down about 8.2% compared with the same week last year-the 14th consecutive week that sales lagged behind 2021 levels, according to surveys by energy-data provider OPIS.”