The personal income data piled onto the bad news of the report and the recent personal income data give a crash course in the importance of inflation-adjusted figures. Nominal personal income continues to march higher, up in 11 of the past 12 months, but after adjusting for the run-up in prices real income paints a strikingly different story for households. Real disposable personal income, which not only adjusts for price changes but also strips out taxes, slid another 0.1% in May and the level is now 5.4% below where it would be implied by its pre-pandemic trend.
With real income having moved decidedly lower, consumers are getting squeezed when it comes to their purchasing power. One way they're continuing to spend at a decent clip is that they're directing less income to savings. The personal saving rate inched higher to 5.4% in May from an upwardly revised 5.2% in April. These 5-handle figures were last reached during the 2009 recession and are well below pre-pandemic saving habits, which had saving rates somewhere between 7% and 8%.
Prior to this week's data, consumer spending was somehow defying gravity; but in the wake of yesterday's GDP revisions and today's dreary May spending figures, the hard data are finally showing what anyone in the checkout line at the grocery store could tell you: the struggle is real. We still think services spending will carry consumer spending through the summer, but once Labor Day comes, the boost from services may not be enough to keep overall consumer spending in the black.
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