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By the Numbers

Featuring brief segments of economic analysis from our senior economist Michael Bazdarich, PhD.

The economic analysis we previously featured in By the Numbers is now available on the Western Asset Blog. This page will no longer be updated.

May Personal Incomes Slow, Consumption Spending Erratic

In line with the soft May jobs number earlier this month, May income growth slowed, with private-sector wage and salary income up only 0.17% and total personal income up only 0.21%. Both of these followed stronger growth earlier in the year. Both measures now show 4.0% annualized growth rate over the last 6 months.

4.0% income growth is not bad, especially with headline inflation running under 1.0%. However, it is not fast enough to drive the acceleration in consumption that many analysts are looking for. This will be even truer should headline inflation pick up as the consensus outlook also calls for.

In line with this, consumer spending news was mixed. Following the strong retail sales growth of the last 2 months, consumer spending on goods has picked up nicely. However, spending on services has slowed noticeably, with April services data revised down by 0.3% and no change in May.

As seen in the green line in the accompanying chart, net of utilities and health care, consumption of services has actually declined slightly over the first 5 months of 2016. I wouldn’t make much of the negative 2016-to-date growth, but I do emphasize that services consumption growth has ceased so far this year, following stronger growth in late-2015. By the same token, as the blue line in the chart illustrates, the stronger goods consumption growth of the last 2 months is mostly an offset of slower growth over January and February. All in all, softer services lately offset stronger goods leaving overall consumption growth about steady. Steady is not bad, but it is not the acceleration other analysts (and the Fed) have been looking for to offset softness in capital spending and exports.

Finally, the chart here excludes spending on vehicles, utilities and health care, because of their short-term volatility. So far this year, vehicle spending has declined, utilities spending has fluctuated with no net change, and health care has gone flat over the last 2 months after stronger growth earlier in 2016. So, none of these “extraneous” factors change the conclusions drawn above.

Real Consumer Spending by Type
Real Consumer Spending by Type
Source: Bureau of Economic Analysis. As of 31 May 16

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 44 years of experience to his position. "By the Numbers" will address economic data releases that are pertinent to a broad range of investors.

Prior to joining the Firm in 2005, Mike ran his own consulting firm, MB Economics. He earned his PhD in Economics at the University of Chicago.

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