Personal spending rises 0.5%<br> in May as incomes rise 0.4%

PBN Staff

06/29/2007

SPENDING by U.S. consumers continued to rise faster than incomes last month, pushing the U.S. personal savings rate to a negative 1.4% as consumers spent $139.8 billion more than they earned. Above, a shopper checks out the sale sign at a shoe store in the Big Apple. /

WASHINGTON – U.S. personal consumption expenditures (PCE) increased 0.5 percent in May to a seasonally adjusted $9.75 trillion, the U.S. Commerce Department’s Bureau of Economic Analysis reported today. The increase lagged analysts’ expectations but matched April’s 0.5-percent rise in personal spending.

Personal income from all sources increased 0.4 percent last month to a seasonally adjusted $11.46 trillion, the BEA said, after falling a revised 0.2 percent in April.
Spending had been expected to rise 0.7 percent and income 0.6 percent, according to the median forecast of 76 economists surveyed by Bloomberg News. An earlier Bloomberg survey predicted that consumer spending, which accounts for 70 percent of the economy, will grow at a rate of 2.2 percent this quarter, slowing to about half its first-quarter pace.
The PCE price index rose 0.5 percent to 117.3 points (2000 = 100) after rising 0.3 percent in April and 0.4 percent in March. The core index excluding food and energy – closely watched by the Federal Reserve Board – increased 0.1 percent to 13.9 points, matching April’s rise and the Bloomberg survey’s forecast.
“The Fed’s going to be much more satisfied with the level of inflation as time goes on,” Peter Kretzmer, a senior economist at Banc of America Securities LLC in New York, told Bloomberg. “These are consumer-spending numbers that the Fed is also happy to see.”
It might be less pleased by the personal savings rate, which was the lowest since August. U.S. personal savings – disposable income minus personal spending – fell to negative 1.4 percent of disposable personal income (negative $139.8 billion), from April’s negative 1.3 percent (negative $121.5 billion), as spending continued to rise faster than income and consumers continued to borrow or spend down savings.
On the income side of the equation, wages and salaries increased 0.4 percent in May after falling 0.5 percent in the month before, while bonuses and other supplements increased 0.3 percent after rising 0.1 percent in April.
Real personal disposable income – the total after-tax income available for spending or saving, adjusted for price changes – shrank by 0.3 percent in May, slowing from April’s 0.4 percent decline. Compared with May 2006, DPI increased 3.4 percent while the PCE increased 3.1 percent.
Additional information, including the 12-page Personal Income and Outlays news release, is available at www.bea.gov.