Strong Spending Points to Q2 GDP Rebound
- U.S. Personal Income increased by 0.5 percent in May. After taxes and inflation it gained 0.2 percent.
- Nominal Consumer Spending increased by 0.9 percent in May driven by auto sales.
- Initial Claims for Unemployment Insurance added 3,000 for the week ending June 20, to hit 271,000.
We knew auto sales were strong in May, up at a 17.8 million unit rate. Now we see the surge in nominal consumer spending, up 0.9 percent for the month. Spending on durable goods gained 2.2 percent. Nondurables were up 1.9 percent. Spending on services, the largest category by volume, gained a moderate 0.3 percent, holding down the headline reading for overall consumer spending. The personal consumption expenditure (PCE) price index was up 0.3 percent in May as energy prices gained 4.7 percent. This leaves real consumer spending with a solid 0.6 percent increase for the middle month of the second quarter, supportive of a Q2 GDP rebound. Nominal income was up by 0.5 percent in May as wages and salaries also gained 0.5 percent. Spending growing faster than income implies a drawdown in the saving rate. The personal saving rate dropped from 5.4 percent in April, to 5.1 percent in May, reversing its climb from October through last February. Strong gains in house prices and equities may allow households to spend a little more freely and enjoy still-cheap gasoline. Anecdotal reports suggest that household automobile miles are increasing. After adjusting for taxes and inflation, real disposable income increased by 0.2 percent in May.
Labor data through June suggests that incomes will continue to improve at a healthy clip. Initial claims for unemployment insurance increased by 3,000 for the week ending June 20 to hit 271,000, still well below the benchmark rate of 300,000. Continuing claims added 22,000 for the week ending June 13, to hit 2,247,000. Pennsylvania reported a sizeable 6,007 increase in initial claims through June 13.
Market Reaction: U.S. equity markets opened with gains. The yield on the 10-year Treasury bond is up to 2.42 percent. NYMEX crude is down to $59.70/barrel. Natural gas futures are down to $2.82/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Personal Income 06-25-15.