Despite some slowdown in the pace of growth, solid economic indicators, like a rise in consumer spending, point to positive signs for the U.S. economy.
The Bureau of Economic Analysis (BEA) reported Friday that disposable personal income (DPI), a key gauge for retail spending, rose 0.4%, or $63.2 billion, in May. Personal consumption expenditures (PCE) grew 0.2%, or $27.8 billion, and was up 2.3% from May 2017.
Real DPI, income adjusted for taxes and inflation, increased 0.2% in May and real PCE decreased less than 0.1%, the BEA said. The PCE price index was up 0.2%, the same percentage gain as the core PCE index, which excludes the volatile food and energy sectors. BEA noted that the increase in personal income in May primarily reflected increases in wages and salaries, personal dividend income and nonfarm proprietors’ income.
The $1.4 billion decline in real PCE–spending adjusted for price changes–in May reflected a decrease in spending for services that was partially offset by an increase in spending for goods. Within services, the largest contributor to the decrease was spending for household utilities.
In the goods sector, recreational goods and vehicles were the leading contributors to the increase. Clothing and footwear also had a good showing, with the PCE increasing 0.8% to $394.43 billion.
“With less spending on utilities in May, some consumers increased their saving, while others shifted spending to other items,” said Chris G. Christopher Jr., executive director of IHS Markit, noting that clothing and footwear was among the top gainers. “Despite the pause in spending, consumer confidence remains historically elevated and continued robust wage gains will support both consumer spending in the coming quarters. Consumer spending growth will continue to contribute to the economic expansion, supported by improving household finances, lower personal tax rates, and gains in employment, real disposable incomes, and home values.”
Personal income increased 0.4%, or $60 billion, or 0.4%, in May compared to April. Personal outlays rose $29.2 billion in May, while the personal saving rate–personal saving as a percentage of disposable personal income, was 3.2%.
Christopher said slower-than-expected real PCE growth in May and downward revisions to April lowered the IHS Markit forecast of second quarter gross domestic product (GDP) growth 0.6% to 4.8%. He said, “Our real consumer spending growth forecast for the second quarter has been revised down to 2.7% from 3.6% due to this report.”