May spending figures show that U.S. consumption is back on track and firmly

U.S. personal spending rose by 0.9% M/M in nominal terms, springing back to life after April's near flat reading (revised from 0.0% to +0.1%). In real terms, consumer expenditures rose a robust 0.6% M/M, above the consensus forecast for a 0.5% gain. With the poor April showing casting some doubt on the narrative of a Q2 bounce, the May spending figures show that U.S. consumption is back on track and firmly in the driver's seat.

Even with the savings rate now close to its recent average, there is room to overshoot as consumer confidence rises back up to its recent cyclical high. Meanwhile, a tightening labor market bodes well for wage gains. Together, these point to a strong consumer spending profile over the near future.

"Even if the headline inflation figure had a decent monthly bounce, the pace of core inflation continues to come in particularly subdued. This suggests little incentive for the Fed to deviate from what we expect will be a very slow pace of rate hikes, beginning in September." notes TD Economics

Overall, these numbers point to a sharp upswing in economic growth for the second quarter, with real GDP now tracking a crisp 3.0%.