June 30, 2017 – Consumer spending, measured by Personal Consumption Expenditures (PCE), makes up approximately two-thirds of the economy and is a direct measure of purchasing activity. We see where consumers are spending their dollars, whether it be durable and nondurable goods, or on services. Changes in the personal income level dictate consumer spending.
Personal income rose 0.4% in May, slightly exceeding expectations of 0.3% increase and stayed consistent with April’s increase of 0.4% increase. Right in line with consensus expectations, consumer spending increased 0.1% for the month. Wages and salaries only managed an increase of 0.1%. The PCE index stayed in line with expectations, decreasing 0.1% with core PCE (excluding food and energy) increasing 0.1%. PCE is up 1.4% over the past year and core PCE is up 1.4% over the last year as well.
May shows slowed growth in spending from April’s increase of 0.4%. On the other hand, personal income showed reasonable growth for the second straight month of 0.4%. Spending was strongest for services with an increase of 0.3%. Nondurable goods was the weakest for spending which was down 0.5% along with durables also down 0.3% this month. With personal income growth exceeding consumer spending, this hints toward consumers not spending their additional money but saving their increase in income. Even though consumers aren’t spending their money on goods which would provide a boost to the economy, they are helping the economy in a different way. By putting their extra income into savings accounts, they are helping the banks provide loans and helping the financial sector.