Consumer Income and Spending Up in May

Washington, DC, June 30, 2006–Personal income in May increased at a seasonally adjusted monthly rate of 0.4%, after rising a revised 0.7% in April, the Commerce Department said Friday.

But disposable personal income–income after taxes–was essentially flat in May when adjusted for inflation. Though disposable income iteself rose by 0.3% in May, following a revised 0.6% increase in April, the rise was offset by inflation.

April personal spending rose by 0.4%, after a revised 0.7% increase the month before. April spending was originally seen up 0.6%.

Economists were expecting a 0.2% increase in personal income and a 0.4% increase for spending in May.

Spending on durable goods, those designed to last three years or longer, dropped by 0.6% in May, after a 0.3% increase in April.

Nondurable goods spending rose by 0.7%, after a 1.5% increase in April. Spending on services increased by 0.5%; outlays were 0.4% higher in April.

A price index for personal consumption expenditures excluding food and energy rose by 0.2% a second straight month in May.

Compared to a year earlier, the core increased by 2.1% during May, after rising 2.1% in April. The Federal Reserve watches the year-over-year core PCE price index closely for signs of excessive inflation. The central bank’s so-called comfort zone for this gauge is considered to be 1.0% to 2.0%.

The Fed on Thursday raised its federal funds rate target a 17th-straight time by one quarter point, hiking to 5.25%. Policymakers stepped back from their pre-commitment to further rate increases, suggesting they may pause the tightening campaign if inflation and economic growth readings subside.

Personal saving as a percentage of disposable personal income was negative 1.7% during May. The savings rate has been negative 12 consecutive months. Personal savings may be near zero or negative when spending is financed by borrowing.