U.S. consumption is back on track

US personal income and spending rose more than expected in May, as solid household incomes gains continued and real consumption advanced at the fastest pace since August of last year. The rebound in consumption drew down the savings rate to 5.1% in May (previous: 5.4%), supporting our view that the recent gains in household savings from stronger labor markets and lower energy prices will help support solid consumption growth over the next few quarters, said Barclays

On the prices side of the report, the headline PCE price index was reported in line with expectations, up 0.3% m/m and 0.2% y/y. Core PCE prices rose 0.1% m/m (0.132% rounded to three decimals), leaving the annual rate of core PCE inflation unchanged at 1.2%. PCE services prices were up 1.7% y/y (previous: 1.8%) and the drag from goods prices (-2.7% y/y, previous: -3.1%) moderated a bit. Looking ahead, we expect a modest drag from goods prices to be offset by solid services inflation.

"The 0.6% m/m gain in real PCE in May came in one-tenth above our forecast, and on net implies stronger consumption growth in Q2. Even after yesterday's upward revisions to Q1 consumption growth (2.1%, initial: 1.8%), the Q2 profile for real PCE growth improved following this morning's report. Our estimate of real consumption growth rose two-tenths to 3.0%, bringing our Q2 real GDP tracking estimate to 3.1%." notes Barclays