Economy Watch: Consumers Up Their Spending in May

People were out spending more in May, suggesting a rebound in economic growth momentum following a weak first quarter of 2016.
Credit: Bureau of Economic Analysis, Personal Income and Outlays, May 2016

Credit: Bureau of Economic Analysis, Personal Income and Outlays, May 2016

Personal consumption expenditures (PCE), meaning people spending their money, rose a robust 0.4 percent in May compared with April, the Bureau of Economic Analysis reported on Wednesday. The increase in spending activity—which is always a good thing for the retail sector directly, and other property sectors indirectly—comes on the heels of the upwardly revised 1.1 percent rise the month before.

Real spending (that is, taking price increases into consideration) was also strong, gaining a further 0.3 percent between April and May, following an upwardly revised 0.8 percent month-over-month gain between March and April. Since incomes didn’t go up that much for either month, some of the spending increase represented a drawdown in savings.

The report also suggested that inflation isn’t heating up very much. The core PCE index rose at a subdued 0.2 percent monthly pace in May, which keeps the annual pace of core inflation unchanged at about 1.6 percent year-over-year.

Overall, the spending report suggests a rebound in economic growth momentum following a weak first quarter, with GDP growth predicted to rise to an annualized 3 percent or more in the second quarter (compared with 1.1 percent in the first). But the data represents PCE before the most recent uncertainties in the global economy, so it’s an open question as to whether future increases will be so robust, since nervous people tend to shop a little less.