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Consumer Spending Barely Moves Despite Jump in Income: Deflationary Headwinds?

Courtesy of Mish

Today’s personal income and outlays report shows consumer spending rose 0.1% while income rose 0.4%. Prices fell 0.1% while core prices rose 0.1%.

The above spending and price numbers are in line with Econoday estimates. Income beat the consensus estimate of 0.3%.

Year-over-year, prices are up 1.4% vs. estimates of 1.5%. The Fed will not be happy with this development.

May was not a strong month for the consumer. Income did rise 0.4 percent but it wasn’t because of wages & salaries which could manage only a 0.1 percent gain. It was personal income transfers and proprietor income that gave a boost to income which the consumer, however, moved into savings, which rose 4 tenths to a 5.5 percent rate, and not spending which could do no better than expectations, at a 0.1 percent increase.

Spending was weakest in nondurable goods, down 0.5 percent in the month but, in an important note, reflected low energy prices not low demand. But spending on durables was also negative, down 0.3 percent. The positive is a moderate 0.3 percent gain for the biggest category and that’s services.

Price data are very soft, up only 0.1 percent for the core rate (less food & energy) for a year-on-year rate of only 1.4 percent, down 1 tenth in the month. This is the third decline in a row for the yearly rate and the weakest showing in a year-and-a-half. The overall PCE fell 0.1 percent with this year-on-year rate also at 1.4 percent for a 3 tenths decline.

The second leg of the second quarter did not turn out well for the consumer nor for GDP. But the weakness in price data is a more strategic concern for monetary policy makers who may be removing stimulus into inflationary headwinds.

Deflationary Headwinds?

Did Econoday mean “removing stimulus into deflationary headwinds”? The latter construct would make more sense (at least as the Fed and Econoday generally see things).

Mish Shedlock


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