US Personal Income Surges, Core PCE Inflation Shows Modest Uptick in May

Highlights

• Personal income in the US increased by $91.2 billion (0.4 percent) in May.
• Consumer spending experienced a modest growth of $18.9 billion (0.1 percent).
• Real personal consumption expenditures (PCE) declined slightly due to decreased spending on goods.

PCE Price Index

The PCE price index, a key measure of inflation, showed a slight uptick of 0.1 percent. Excluding food and energy, the core index saw a more substantial rise of 0.3 percent, signaling potential underlying inflationary pressures. On a real basis, adjusted for inflation, DPI increased by 0.3 percent, while real PCE saw a marginal decline of less than 0.1 percent. This decrease in real PCE was attributed to a 0.4 percent dip in spending on goods, partially offset by a 0.2 percent increase in spending on services.

Personal Income

In May, personal income in the United States saw a notable increase of $91.2 billion, representing a 0.4 percent growth rate, according to the latest data released by the Bureau of Economic Analysis. Disposable personal income (DPI), which deducts personal current taxes, also rose by $86.7 billion or 0.4 percent. Concurrently, personal consumption expenditures (PCE) experienced a modest growth of $18.9 billion, equivalent to a 0.1 percent increase.

The surge in personal income can be primarily attributed to rises in compensation, personal current transfer receipts, and personal income receipts on assets. Notably, private wages and salaries led the increase in compensation, while Medicaid payments drove the boost in transfer receipts. Personal interest income played a significant role in the increase in personal income receipts on assets.

Personal Spending

Breaking down consumer spending in May, the $18.9 billion surge in PCE was fueled by a $52.0 billion increase in services spending, with notable contributions from healthcare (especially outpatient services), “other” services (led by international travel), and transportation services (primarily air transportation). A $33.1 billion decrease in goods spending partly offset this growth, as reduced expenditures on motor vehicles and parts (particularly new light trucks) and gasoline and other energy goods drove the decline.

PCE Details

When considering personal outlays, which include PCE, personal interest payments, and personal current transfer payments, May saw an overall increase of $22.7 billion. Meanwhile, personal saving reached $910.3 billion, equivalent to a personal saving rate of 4.6 percent when measured as a percentage of disposable personal income.

In terms of prices, the PCE price index for May rose 0.1 percent from the previous month. Goods prices experienced a slight decline of 0.1 percent, while services prices recorded a notable increase of 0.3 percent. Food prices increased by 0.1 percent, while energy prices decreased by 3.9 percent. Excluding food and energy, the PCE price index rose by 0.3 percent.

Compared to the same period last year, the PCE price index for May witnessed a substantial increase of 3.8 percent. Goods prices rose by 1.1 percent, while services prices soared by 5.3 percent. Food prices saw a significant surge of 5.8 percent, while energy prices declined by 13.4 percent. Excluding food and energy, the PCE price index surged by 4.6 percent compared to a year ago.

PCE – Challenging, Personal Income – Healthy, Personal Spending – Steady

Overall, while personal income experienced a healthy rise in May, consumer spending remained relatively steady. The decline in real PCE, primarily driven by decreased spending on goods, suggests potential challenges in the goods sector. Looking ahead, analysts will closely monitor inflationary pressures and consumer behavior to gauge the economy’s direction in the coming months