Personal Income Outpaced Spending in May

Americans saw their incomes grow faster than their spending in May, the government said Friday, as consumers curtailed their purchases of such big-ticket items as automobiles and appliances.

Personal income, a measure of wages, interest and government benefits, rose 0.4% in May, slightly slower than the revised 0.6% pace in April, the Commerce Department reported. Meanwhile, personal spending grew by only 0.2%, unchanged from the revised 0.2% pace in April.

The consensus of economists polled by Reuters had forecast 0.2% gains in both income and spending.

The report's inflation measure, the implicit price deflator, was unchanged for a second month, suggesting that inflationary pressure in the economy remains out of sight. In the last year, the Federal Reserve has indicated a preference for the deflator as an inflation measure, rather than the consumer prices index, which the Fed has historically watched.

May was the second month in which income growth outpaced spending, offering further evidence of the "tentative and preliminary" signs of economic slowing identified by Fed policy makers when they held interest rates steady earlier this week. In the last year, the Fed has raised short-term interest rates six times in an attempt to slow consumer and business spending by making it more costly to borrow.

Signs of economic slowing in recent months have been seen in slower housing market activity, an uptick in unemployment in May and declining retail sales .

But Fed policy makers and many economists remain skeptical that the slowdown will be sustained, and they believe that inflation remains a distinct threat because consumers are buying more goods than American companies are producing.

"The risks continue to be weighted mainly toward conditions that may generate heightened inflation pressures in the foreseeable future," Fed policy makers said in a statement.

The slowdown in spending in May was largely concentrated in durable goods, items meant to last three or more years, such as autos, furniture and appliances. The data showed durable spending dropped 1% in May, the third consecutive monthly decline. Spending on non-durable goods rose 0.2% after falling 0.2% in April.

Within the income data, growth in wages and salaries decelerated to a marginal 0.04% pace in May after growing at a 0.8% rate in April. Slower job creation and higher unemployment in May likely accounted for the slower wage growth.

Income growth was mostly tied to government jobs, where incomes rose by 0.8% after a 0.5% rise in April. Manufacturing income dropped 0.3% following April's 0.9% pace, while service sector incomes rose 0.3% following April's 0.9% rise.