A Very Trumpian May: American Incomes and Savings Rose While Utility Bills Fell

Americans spent less on gas, water, and electricity in May, holding back overall consumer spending even as incomes improved.

Personal consumption expenditures increased a seasonally adjusted 0.2 percent in May, the Commerce Department said Friday. That was half the amount forecast by economists, according to Bloomberg’s Econoday.

Consumer spending on goods increased by 0.3 percent, led by spending on recreational goods and vehicles. But consumer spending on services declined in large part because household spending on utilities fell.

Over 100 electric, gas ,and water utilities have cut their customer charges due to the Trump tax cuts. That amounts to a total savings of about $3 billion, according to Americans for Tax Reform.

Personal income–which includes pre-tax wages, salaries, and dividends–rose by the expected 0.4 percent in May, up from a revised 0.2 percent rise in April. Wages, however, rose by just 0.3 percent despite very low levels of unemployment.

Disposable personal income, which measures after tax money available for spending or saving, rose by a stronger 0.4 percent.

The lower than expected spending combined with rising incomes pushed the saving rate up in May to 3.2% from 3% in April.

Inflation picked up a bit. Personal consumption expenditures rose 0.2% in May and was up 2.3% from a year ago.

Core inflation, excluding volatile food and energy costs, was 0.2 percent in May, with prices 2% higher than a year earlier. That is the highest reading for core inflation in six years.

Fed officials say they target two percent inflation but are willing to allow inflation to move above the target after years of below-target price levels.

Despite the good news in the report, lower than expected consumer spending is weighing on estimates for second-quarter gross domestic product. The Atlanta Fed’s GDPNow model forecasts a 3.8 percent growth rate, down markedly from 4.5 percent earlier this week. The New York Fed’s Nowcast dropped from 2.9 percent to 2.8 percent.