After five months of carefully watching their wallets Americans suddenly reversed course in May with the biggest jump in personal spending in almost six years.
Consumption grew 0.9 percent easily topping the 0.7 percent forecast, for the largest monthly gain since August 2009. April’s result moved to 0.1 percent from flat.
On the year personal spending climbed 3.6 percent, the strongest rate since January and a 0.5 percent improvement on April. When adjusted for inflation, real personal spending, rose 0.6 percent in May, the biggest increase since last August. It was 3.4 percent higher on the year.
It was not a bigger paycheck that fueled household spending. Personal income growth was static in May expanding 0.5 percent, unchanged from the month before but confirming that March's flat reading was an anomaly. Income was 4.4 percent higher on the year, up from Aprils 4.2 percent.
With income unchanged, consumers dipped into their savings to go to the stores. The savings rate for disposable income dropped to 5.1 percent in May from 5.4 percent in April, the same as in March and the lowest since December.
The bulk of the boost in spending came from energy consumption which rose 4.72 percent in the month. Spending on gasoline alone was 15 percent higher. Personal consumption expenditures excluding food and energy were just 0.62 percent higher.
Inflation remained tame in May. The personal consumption expenditure price index rose 0.3 percent in May as expected and was just 0.2 percent higher on the year. Except for the price collapse during the financial crisis and recession in 2008 and 2009, this is the lowest U.S. PCE inflation rate in the 55 year history of this series.
The core measure of the same index, the Federal Reserve’s chooses price gauge, rose 0.1 percent on the month, as forecast and has gained 1.2 percent on the year, down from 1.3 percent in April. It is the lowest annual core inflation rate since February 2014 and the second lowest in four and a half years. The core PCE rate was last at the Fed's 2 percent target in March 2012.
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