In this morning’s data, Personal Income grew 0.4% in May, slightly higher than expected. Personal Spending grew 0.1% in May, less than expected and markedly less than the previous month. Real Personal Spending which accounts for inflation was flat in May, less than expected. Meanwhile, the personal savings rate as a percentage of disposable income was 4.6%, a slight increase from previous levels.
Looking at inflation, the PCE Deflator grew 0.1% in May as expected and grew 3.8% on an annual basis. The Core PCE Deflator, which excludes food and energy prices and is closely monitored by the Federal Reserve, increased 0.3% in May, also as expected but only one-tenth lower than the previous month. Core rates grew 4.6% on an annual basis, still well above the Federal Reserve’s target.
Overall, personal income and spending both increased in May, although spending grew at a much slower rate than the previous month. Consumers appear more reticent to spend in the current environment. Meanwhile, headline inflation was nearly flat on a monthly basis, but core rates still increased. Core inflation remains elevated and appears sticky. The Federal Reserve paused rate increases at their most recent meeting, but recent speeches have revealed they may continue with increases in the months ahead. In this environment, how long consumers can continue to spend, and upcoming quarterly earnings results and commentary will be key components for the markets in the weeks ahead.
In all, the 10-year US Treasury yield ticks lower following the report and equity futures are higher as we head into the market open.
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