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US May Personal Income Slows, Spending Soars

Personal income fell in May after a large runup in April on government stimulus payments, while spending surged as businesses partially reopened, the Commerce Department reported Friday.

Personal income fell by 4.2% in May ahead of the 6.0% decline expected after a 10.8% jump in April.

Current transfer receipts fell by $1.1 trillion after a $3.0 trillion increase in April, with the “other” transfer payments category, which includes all the government stimulus measures, the key factor. It fell by $2.0 trillion after a $2.6 trillion increase in April.

The regular unemployment insurance category, which reflects that state portion of jobless benefits, rose by $825 billion in the month after a $383 billion gain in April. The increases in claims will continue to add to this category.

The 2.5 million jobs rebound in payrolls in the month helped lift wages and salaries by 2.7% after a 7.6% April decline, even as average hourly earnings declined.

Proprietors’ income rose by $39.8 billion after a $206.0 billion decrease in the previous month, while return on assets fell by $42.1billion, with both interest and dividend income down.

The savings rate fell to 23.2% in May from 32.2% in April, as consumers had more places to spend their money. Still, the rate remains high and suggests consumers are cautious about their spending amid the uncertainty.

On the spending side in May, current-dollar personal consumption expenditures rose by 8.2%, below the 8.5% increases expected. Retail sales rebounded in May after sharp declines in March and April. Goods PCE rose by 14.1% on motor vehicles, while services PCE rose by 5.4% on healthcare and food services.

After adjustment for a 0.1% increase in the PCE price index, real PCE rose by 8.1%. This still does not make up for the sharp April decline. Real PCE growth currently stands 41.8% below the first quarter at an annual rate. The GDP data released on Thursday showed that real PCE fell by 6.8% in the first quarter.

Core PCE prices rose by 0.1% in May, as expected, after a 0.4% decline in April, keeping the year/year rate at 1.0%.

In other data released on Friday, the Michigan Sentiment index for June was revised down to 78.1 from the 78.9 preliminary estimate. The reading is still an improvement from 72.3 in May.

The current conditions and expectations readings were both revised lower, but confidence appears to be on an upward trend after dipping during the shutdown.

Kevin Kastner

Julie Ros

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