Personal Spending Edged Higher in May, Slowing from Faster Gains in March and April

The Bureau of Economic Analysis reported that personal spending edged higher in May, up 0.1 percent, after 0.4 percent gains in both March and April. In May, personal consumption expenditures (PCEs) were lower on reduced goods purchases, down 0.5 percent, but service-sector spending increased slightly, up 0.3 percent. We have seen spending pull back from more robust growth at the end of 2016, but this report suggests Americans have begun to open their pocketbooks once more, albeit still cautiously. PCEs have risen 4.2 percent over the past 12 months. One year ago, the year-over-year rate was 3.5 percent, illustrating the pickup in spending since then, and yet, the current year-over-year pace is down from 5.2 percent in March and 4.5 percent in April.

Mirroring those trends, the saving rate rose from 5.1 percent in April to 5.5 percent in May, with the increase in income outpacing spending growth. That was the highest saving rate since September. Still, the saving rate has fallen from 6.0 percent one year ago, a sign that Americans have accelerated their purchases in general over the past 12 months.

Meanwhile, personal incomes rose 0.4 percent in May, an improvement from the 0.3 percent gain in April. On a year-over-year basis, personal incomes have continued to increase at a decent clip, up 3.5 percent since May 2016. Nonetheless, manufacturing wages and salaries declined from $841.4 billion in April to $837.0 billion in May. There has been a steady upward trend in manufacturing compensation in general, with wages and salaries in the sector rising 1.5 percent over the past six months (or 3.1 percent at the annual rate over that time frame), up from $824.5 billion in November.

In other news, the PCE deflator decreased 0.1 percent in May, down for the second time in the past three months. Reduced energy costs contributed to the decline in this release, with food prices unchanged. Since May 2016, the PCE deflator has increased 1.4 percent, its lowest year-over-year rate since November. Similarly, excluding food and energy, core inflation was 1.4 percent. After seeing pricing pressures accelerate strongly earlier this year—with the PCE deflator peaking at 2.2 percent year-over-year in February—inflation has pulled back since then.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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