US personal spending in May points to solid Q2 consumption
US personal income and spending grew as expected in May, pointing to solid growth in household consumption during the second quarter, according to some economists.
Personal incomes increased by 0.2% month-on-month in May following a rise of 0.5% in the month before, alongside a 0.4% jump in consumption, according to the Department of Commerce.
Economists had been expecting a rise of 0.3% and 0.4%, respectively.
Upwards revisions to figures on consumption for the prior month meant the data were in fact slightly ahead of forecasts.
Disposable personal incomes, what´s left over after deducting taxes, rose by 0.1% month-on-month.
In comparison with April, both the headline and 'core' rates for the personal consumption expenditures price deflator, two widely followed gauges of inflation pressures, advanced by 0.2% on the month.
"The good news is that an upward revision to April, coupled with the downward revisions to Q1 - bringing the monthly data into line with the quarterly numbers released yesterday - means Q2 consumption will now rise at a hefty 4.2% annualized rate even if spending is unchanged in June. With a modest 0.2% gain, consumption will be up 4.5%, contributing 3.2% to headline GDP growth. Expect all the tracking models to be revised higher," said Ian Sheperdson, chief US economist at Pantheon Macroeconomics.
Versus a year ago, the headline PCE dipped from a 1.1% pace in April to 0.9% in May, while the 'core' rate was steady at 1.6%.
Sheperdson expected the core rate of PCE inflation to register a clear rise in the fall as so-called base effects kicked-in, pushing the year-on-year rate of increases to 2.0% by the end of 2016, two years ahead of the US central bank´s own forecasts.
Barclays raised its tracking estimate for the rate of growth in second quarter US gross domestic product from 2.5% to 2.8% following the release of Wednesday´s figures.