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Income Growth Slows as Spending Drops in May

Consumer spending fell $4.7 billion, less than 1 percent in May, reversing the 0.15 percent increase in April, the ""Labor Department"":http://www.dol.gov/ reported Friday.


Personal income meanwhile grew $25.4 billion or 0.18 percent, down from April's 0.22 percent growth. The numbers suggest GDP growth for the second quarter which ends Saturday could be slip from the first quarter's weak 1.9 percent growth rate.

Economists surveyed by Bloomberg had expected spending in May to be flat to April and personal income to increase 0.3 percent.

In dollars, income growth in May was less than the $29.4 billion in April, while spending fell from a gain of $16.2 billion in April. As a result, personal savings grew $25.5 billion in May, compared with an increase of $5.7 billion in April.

Disposable personal income ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô essentially after-tax income ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô rose $18.5 billion in May, compared with $19.5 billion in April.

Personal consumption ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô which represents 70.7 percent of the nation's GDP ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô for the first two months of the second quarter was up just 0.5 percent from the first quarter.


Personal consumption grew 1.25 percent from the fourth quarter last year to the first quarter of 2012.

Personal savings as a percentage of after-tax income edged up to 3.9 percent in May from 3.7 percent in April; it had been 3.7 percent in March also. With continuing low interest rates, personal interest payments (non-mortgage interest) dropped to $164.1 billion in May from $166.8 billion in April.

Wages and salaries rose a scant $1.4 billion in May after increasing $5.7 billion in April. Following reductions mandated by Congress, unemployment insurance payments fell $6.0 billion in May after dropping $2.5 billion in April. Unemployment insurance fell for the fifth straight month.

Wage and salary growth accounted for just 5.5 percent of the growth income in May, down from 19.3 percent in April. Overall, wages and salaries represented 51.25 percent of personal income in May.

The drop in spending came primarily in the purchase of goods, down $26.2 billion from April and most of that decline came from a fall-off in spending on non-durable items, $21.6 billion.

Spending on durables fell $4.6 billion. Spending on services rose $21.5 billion in May after increasing $25.9 billion in April. The May decrease in spending on goods was the third consecutive monthly drop.

The Personal Consumption Expenditure (PCE) Price Index ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô often considered the Federal Reserve's favored measure of inflation ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô fell 0.2 percent in May and is now 1.5 percent above its year ago level.

In April, the Index was flat and the year-over-year increase was 1.9 percent. Meanwhile, the Core PCE Index ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô excluding food and energy - rose 0.1 percent in May and is up 1.8 percent in the last year, compared with a 0.1 percent increase in April producing a 2.0 percent year-over-year increase.

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.

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