| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| Personal Income - M/M | 0.4% | 0.2% to 0.4% | 0.4% | 0.4% | 0.3% |
| Personal Consumption Expenditures - M/M | 0.2% | 0.0% to 0.4% | 0.1% | 0.8% | 0.6% |
| PCE Price Index - M/M | 0.1% | 0.0% to 0.2% | 0.1% | 0.4% | |
| PCE Price Index - Y/Y | 3.8% | 3.7% to 4.1% | 3.8% | 4.4% | 4.3% |
| Core PCE Price Index - M/M | 0.4% | 0.2% to 0.4% | 0.3% | 0.4% | |
| Core PCE Price Index - Y/Y | 4.7% | 4.5% to 4.7% | 4.6% | 4.7% |
Highlights
Personal income is up 0.4 percent in May after up 0.3 percent in April. The increase matches the consensus in the Econoday survey of forecasters. Gains in income include a 0.5 percent month-over-month rise in wages and salaries. Proprietors' income with inventory valuation and capital consumption adjustments is up 0.3 percent with a 4.3 percent decline in farm income and an increase of 0.5 percent in nonfarm income. Income from government social benefits is up 0.3 percent in May from April. Notable is a 2.1 percent decline in unemployment insurance benefits which suggests that fewer workers are on the unemployment rolls, although it may also reflect some recipients running out of benefits. Benefits to veterans are up 0.6 percent in May.
Personal consumption expenditures are up a scant 0.1 percent in May from April, although spending was up 0.6 percent in April and it may be that some demand was exhausted. The May increase is slightly below the consensus of up 0.2 percent in the Econoday survey of forecasters. Spending on durables is down 0.9 percent in May and nondurables is down 0.3 percent. Services spending in May is up 0.4 percent month-over-month.
The PCE deflator shows an easing in upward price pressures with the total up only 0.1 percent month-over-month in May after up 0.4 percent month-over-month in April. Year-over-year the PCE deflator is up 3.8 percent in May after up 4.3 percent in April. The May annual rate is the lowest since up 3.6 percent in April 2021. The PCE deflator excluding food and energy does not suggest as much progress on inflation at the core level. The core PCE deflator is up 0.3 percent in May from April after up 0.4 percent in April from March. Year-over-year the core PCE index is up 4.6 percent in May and has been virtually the same for the past six months.
Price declines for commodities have helped get headline inflation on a downward trend. However, services are slower to respond to more restrictive financial conditions in a meaningful and persistent way. Fed policymakers will take this into account when the FOMC next meets on July 25-26.
Personal consumption expenditures are up a scant 0.1 percent in May from April, although spending was up 0.6 percent in April and it may be that some demand was exhausted. The May increase is slightly below the consensus of up 0.2 percent in the Econoday survey of forecasters. Spending on durables is down 0.9 percent in May and nondurables is down 0.3 percent. Services spending in May is up 0.4 percent month-over-month.
The PCE deflator shows an easing in upward price pressures with the total up only 0.1 percent month-over-month in May after up 0.4 percent month-over-month in April. Year-over-year the PCE deflator is up 3.8 percent in May after up 4.3 percent in April. The May annual rate is the lowest since up 3.6 percent in April 2021. The PCE deflator excluding food and energy does not suggest as much progress on inflation at the core level. The core PCE deflator is up 0.3 percent in May from April after up 0.4 percent in April from March. Year-over-year the core PCE index is up 4.6 percent in May and has been virtually the same for the past six months.
Price declines for commodities have helped get headline inflation on a downward trend. However, services are slower to respond to more restrictive financial conditions in a meaningful and persistent way. Fed policymakers will take this into account when the FOMC next meets on July 25-26.
Market Consensus Before Announcement
Personal income is expected to rise 0.4 percent in May with consumption expenditures expected to increase 0.2 percent. These would compare with April's 0.4 percent gain for income and 0.8 percent jump for consumption. Inflation readings for May are expected at monthly increases of 0.1 percent overall and 0.4 percent for the core (versus April's respective increases of 0.4 percent for both) for annual rates of 3.8 and 4.7 percent (versus April's 4.4 and 4.7 percent).
Definition
Personal income represents the income that households receive from all sources including wages and salaries, fringe benefits such as employer contributions to private pension plans, proprietors' income, income from rent, dividends and interest and transfer payments such as Social Security and unemployment compensation. Personal contributions for social insurance are subtracted from personal income.
Personal consumption expenditures are the major portion of personal outlays, which also include personal interest payments and transfer payments. Personal consumption expenditures are divided into durable goods, nondurable goods and services. These figures are the monthly analogues to the quarterly consumption expenditures in the GDP report, available in nominal and real (inflation-adjusted) dollars. Economic performance is more appropriately measured after the effects of inflation are removed.
Each month, the Bureau of Economic Analysis also compiles the personal consumption expenditure price index, also known as the PCE price index. This inflation index measures a basket of goods and services that is updated annually in contrast to the CPI, which measures a fixed basket.
Personal consumption expenditures are the major portion of personal outlays, which also include personal interest payments and transfer payments. Personal consumption expenditures are divided into durable goods, nondurable goods and services. These figures are the monthly analogues to the quarterly consumption expenditures in the GDP report, available in nominal and real (inflation-adjusted) dollars. Economic performance is more appropriately measured after the effects of inflation are removed.
Each month, the Bureau of Economic Analysis also compiles the personal consumption expenditure price index, also known as the PCE price index. This inflation index measures a basket of goods and services that is updated annually in contrast to the CPI, which measures a fixed basket.
Description
The income and outlays data are another handy way to gauge the strength of the consumer sector in this economy and where it is headed. Income gives households the power to spend and/or save. Spending greases the wheels of the economy and keeps it growing. Savings are often invested in the financial markets and can drive up the prices of stocks and bonds. Even if savings simply go into a bank account, part of those funds typically is used by the bank for lending and therefore contributes to economic activity. In the past twenty years, the personal saving rate has diminished rapidly as consumers have spent a greater and greater share of their income. But that has reversed in part during the recession that began in 2008 as consumers have cut back on credit card use and have been rebuilding retirement accounts.
The consumption (outlays) part of this report is even more directly tied to the economy, which we know usually dictates how the markets perform. Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Investors can see how consumers are directing their spending, whether they are buying durable goods, nondurable goods or services. Needless to say, that's a big advantage for investors who determine which companies' shares they will buy.
The PCE price indexes have gained importance since the Fed announced a medium-term inflation goal of 2 percent based on the headline number on a year-on-year basis. The Fed forecasts inflation for both the headline PCE price index and the core rate (excluding food and energy).
Importance
Income is the major determinant of spending -- U.S. consumers spend roughly 95 cents of each new dollar. Consumer spending accounts directly for more than two-thirds of overall economic activity and indirectly influences capital spending, inventory investment and imports.
Interpretation
Increases (decreases) in income and consumption cause bond prices to fall (rally). As long as spending isn't inflationary, the stock market benefits because greater spending spurs corporate profits. Financial market participants pay somewhat less attention to personal consumption expenditures than to retail sales, which are released earlier in the month. However, they do closely monitor personal income and the PCE deflator.
Changes in personal income signal changes in consumer spending. For instance, a period of rapid income growth may signal future gains in personal consumption expenditures as well. Conversely, a period of declining income growth could signal an impending recession. While consumers often still must purchase necessities, discretionary purchases may decline, or moderate.
Consumers are more likely to increase spending when they see their stock portfolios increase in tandem with the stock market. When the stock market falls, spending is likely to decline because consumers feel less wealthy. Home prices and home equity have similar effects. Rising home prices boost the amount of equity consumers have in their homes. This allows access to Home Equity Line of Credit (HELOC) accounts. Plus consumers feel wealthier whether they have a HELOC account or not. When home prices decline, home equity falls and cuts into consumer spending.
Personal income is a comprehensive figure, but also incorporates taxes consumers must pay. By removing personal tax payments from personal income, we are left with disposable income. This is what consumers have left to spend on goods and services. Adjusting for inflation reveals growth in real disposable income.
On the inflation front, if PCE inflation is running below the Fed's goal of 2 percent inflation, that is seen as favorable toward Fed ease or neutral monetary policy. PCE inflation above 2 percent suggests that the Fed might be more inclined to raise policy rates.
The consumption (outlays) part of this report is even more directly tied to the economy, which we know usually dictates how the markets perform. Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Investors can see how consumers are directing their spending, whether they are buying durable goods, nondurable goods or services. Needless to say, that's a big advantage for investors who determine which companies' shares they will buy.
The PCE price indexes have gained importance since the Fed announced a medium-term inflation goal of 2 percent based on the headline number on a year-on-year basis. The Fed forecasts inflation for both the headline PCE price index and the core rate (excluding food and energy).
Importance
Income is the major determinant of spending -- U.S. consumers spend roughly 95 cents of each new dollar. Consumer spending accounts directly for more than two-thirds of overall economic activity and indirectly influences capital spending, inventory investment and imports.
Interpretation
Increases (decreases) in income and consumption cause bond prices to fall (rally). As long as spending isn't inflationary, the stock market benefits because greater spending spurs corporate profits. Financial market participants pay somewhat less attention to personal consumption expenditures than to retail sales, which are released earlier in the month. However, they do closely monitor personal income and the PCE deflator.
Changes in personal income signal changes in consumer spending. For instance, a period of rapid income growth may signal future gains in personal consumption expenditures as well. Conversely, a period of declining income growth could signal an impending recession. While consumers often still must purchase necessities, discretionary purchases may decline, or moderate.
Consumers are more likely to increase spending when they see their stock portfolios increase in tandem with the stock market. When the stock market falls, spending is likely to decline because consumers feel less wealthy. Home prices and home equity have similar effects. Rising home prices boost the amount of equity consumers have in their homes. This allows access to Home Equity Line of Credit (HELOC) accounts. Plus consumers feel wealthier whether they have a HELOC account or not. When home prices decline, home equity falls and cuts into consumer spending.
Personal income is a comprehensive figure, but also incorporates taxes consumers must pay. By removing personal tax payments from personal income, we are left with disposable income. This is what consumers have left to spend on goods and services. Adjusting for inflation reveals growth in real disposable income.
On the inflation front, if PCE inflation is running below the Fed's goal of 2 percent inflation, that is seen as favorable toward Fed ease or neutral monetary policy. PCE inflation above 2 percent suggests that the Fed might be more inclined to raise policy rates.
