US: Personal Income and Spending Both Perk Up in May

• Following a flat reading in April, personal income rebounded by 0.7% month-over-month (m/m) in May, ahead of market expectations for a 0.4% gain. The gain was driven by a firming in wages and salaries, and an increase in farm proprietors’ income, reflecting an increase in payments from the American Relief Act of 2025.
• After adjusting for inflation, taxes, and transfers, real disposable personal income rose 0.3% m/m, partially reversing a 0.5% decline the prior month.
• Consumer spending rose 0.7% m/m in nominal terms, slightly ahead of expectations. Higher prices were part of the story, but not all of it. Real spending rose by a healthy 0.3% m/m.
• Looking across the broad categories, goods spending rebounded, rising 0.5% m/m in real terms. Spending on durables strengthened on the month, supported by higher outlays on motor vehicles and parts (+0.9% m/m), recreational goods and vehicles (+0.8%), and furniture and household equipment (+1.2%). Spending on non-durables was also higher (+0.3%), even as households purchased less gasoline for a third consecutive month. Services spending edged up 0.2% m/m, supported by higher outlays on necessities such as housing, healthcare, and financial services, while consumers cut back on food services and accommodation as well as transportation.
• With income growth keeping up with spending this month, the personal saving rate held steady at four-year low of 3.0%.
• Inflationary pressures remained firm on the month. Core PCE—the Fed’s preferred inflation gauge—rose 0.3% m/m, in line with the prior month and with the average monthly increase so far this year. The twelve-month change accelerated to 3.4%, up slightly from 3.3% last month.

Key Implications

• Today’s report brought some welcome news on the health of the consumer. Both spending and income both rebounded, marking a clear improvement from the prior month. While the revisions made the savings rate look slightly less dire than it did a month ago, it’s still sitting at the lowest level in roughly four-years, suggesting household spending capacity remains limited. This is evident in spending data, where consumers have had to start making some tough choices in recent months, by reducing travel and lodging expenses, and cutting back on dining out in an effort to stay within budget.
• Looking ahead, the worst of the gas price increases seems to be in the rear-view mirror, and households should get some modest reprieve from lower prices at the pump in June. The labor market also appears to be showing some signs of strengthening, while household wealth continues to be supported by rising equity valuations. This should help to sustain consumer spending at around a 2% pace through year-end.