Personal Income And Spending Both Lower Than Expected, PCE Deflator Surges, Savings Rate Higher

Not surprisingly, the personal household weakness continues into May, when both personal income and spending came lower than expected, the first printing at 0.3% on expectations of 0.4%, in line with a revised 0.3% in April, while spending printing coming unchanged in May on expectations of a 0.1% rise, down from a revised 0.3% in April. Most important was that the PCE deflator increased by the most since late 2009, surging from 2.2% to 2.5%, just as expected. Squatters rent component of income once again increased: "Rental income of persons increased $3.3 billion in May, compared with an increase of $2.9 billion in April." More importantly, "Private wage and salary disbursements increased $14.1 billion in May, compared with an increase of $26.4 billion in April." This in line with observed decline in tax withholdings by the government over the past several months. Net result, in May the savings rate increased modestly from 4.9% to 5.0%, much to the chagrin of spending advocates everywhere, as in addition to deleveraging, US consumers also saved more. And this is before the market flush in June...

Savings rate:

And here is Goldman's disappointed take on the numbers:


1. Personal spending fell short of expectations, remaining unchanged in nominal terms but falling 0.1% in real terms. Moreover, the level of real spending in April was revised down. Real personal spending in the first quarter is tracking at 1% or just below, compared with the latest Q2 assumption of 1¼%. This implies a bit of downside risk to our 2% GDP growth estimate for the second quarter. Personal income also fell short of consensus expectations in May, rising 0.3% from a downward-revised base. The saving rate increased by one tenth to 5.0%.

2. The price components of this report contained few meaningful surprises. The increase in the core index was a bit above our expectation (+0.26% versus 0.24%). The year-to-year trend accelerated to 1.2%, as expected