US: Another strong month for consumption - Wells Fargo

Analysts from Wells Fargo, point out that personal consumption had another strong month in May and is driving growth in the second quarter; regarding personal income, they observed a slowdown, “perhaps as a consequence of the slowdown in job growth”.

Key Quotes:

“Personal income growth slowed down a bit in May, posting a rate of growth of 0.2 percent versus 0.3 percent in March and an upwardly revised 0.5 percent in April. Still, the 0.2 percent increase in May was strong but it was clearly negatively affected by the weakening we saw in nonfarm employment in both April and May.”

“Personal consumption expenditures (PCE) increased an “expected” 0.4 percent in May. However, that “expected” 0.4 percent came after April’s already strong growth rate was revised further up to 1.1 percent from a previous 1.0 percent increase. Thus, the 0.4 percent in May was actually stronger than the 0.4 percent “expected” by consensus.”

“However, more important for second quarter GDP was the upward revision to real spending, or real PCE. Real PCE had started the second quarter at a very strong pace, rising 0.6 percent in April. However, that growth rate was revised up to 0.8 percent. Furthermore, real PCE was up a higher than expected 0.3 percent in May, which means that consumer demand remained strong during the second month and will add an even stronger note to the second quarter’s performance.”

“Although the PCE deflator remained tame in May, increasing 0.2 percent, the Federal Reserve may start to gain more confidence that strength in consumer demand could trigger higher inflation going forward. However, we still believe that recent heightened uncertainty will probably trump any concern regarding inflation by the Fed and keep them from moving in the near term.