Personal Income & Spending Both Rose in May

Income and spending both moved higher in May, with income up 1.4 percent on the month. Gains in disposable income (1.6 percent on the month) were largely the result of increased social benefit payments and reduced taxes related to the 2009 stimulus package. Real spending climbed 0.3 percent, while inflation remained tame.

Income Gains Almost All Stimulus-Related

Income jumped $167.1 billion at an annual rate in May, but the vast majority of the increase can be attributed to the recent stimulus bill and increased transfer payments. The one-time $250 payments to eligible retirees alone accounted for a boost in income of $157.6 billion, at an annual rate. Much of the gain will be reversed next month, and the weakness we saw in wage & salary income (-0.1 percent) will continue in June.

Saving Higher, Inflation Benign

The saving rate jumped sharply to its highest level in 15 years. While much of this month's gain can be attributed to the stimulus induced gain in income, the trend is clearly higher. We expect saving to continue at an elevated rate for some time.

Inflation remained tame, with the core PCE deflator up just 0.1 percent in May. There is no need for concern of runaway inflation in the near-term.

Wachovia Corporation
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