US real consumption grows in May; but likely to dampen in future

US personal consumption grew 0.4 percent on a month-on-month basis, consistent with expectations. Also, April’s figure was revised upwards to 1.1 percent of growth from the earlier estimate of 1 percent. Real spending in the country continued to increase, growing 0.3 percent, slightly stronger than consensus projection of 0.2 percent.

Consumption in the US held up well. This implies that consumers have created a savings buffer from low gas prices and increasing wages and are hence now enjoying the benefits. American shoppers seemed to have spent in full force in the second quarter following a dull first quarter. Real consumption rose over 4 percent annualized, which is sufficient to stimulate GDP growth above the mid 2 percent mark in Q2, noted TD Economics.

Durable goods consumption, which grew 0.6 percent, mainly drove real spending, whereas non-durable goods increased 0.5 percent. Meanwhile, services spending growth slowed to 0.1 percent in May from April’s 0.5 percent. It is quite likely that the consumption data for the month of June has continued to be robust given that the consumer sentiment rebounded in the month.

However, the impact of the Brexit vote and the heightened nervousness about the plunge in the stock market might hurt consumption in the future. But this impact might be witnessed in July rather than in June as the Brexit decision came in during the end of the month, said Wells Fargo in a research note.

Personal income in the US grew 0.2 percent on a sequential basis last month, just a tad below the consensus projection of 0.3 percent. Real disposable personal income, excluding inflation and taxes rose 0.1 percent in May.

In April, personal income growth was at 0.5 percent. The deceleration in the growth of income was slightly disappointing. However, it comes following a series for strong performances in the beginning of 2016. The May’s disappointing print was countered by the upward revision to April’s figure.

Furthermore, income growth is likely to accelerate in June as the impact of the Verizon stroke wanes and job growth recovers, said TD Economics in a research report.

Meanwhile, headline and core prices, measured by PCE deflators, grew 0.2 percent on sequential basis, whereas headline inflation slowed to 0.9 percent on a year-on-year basis in May from 1 percent. However, core inflation rate remained stable at 1.6 percent.

Both the core and headline figures came in as anticipated. With the recent volatility due to the Brexit decision and US dollar surge, and the increased downside risks to the global and US economies, the US Fed is expected to be quite patient with monetary policy in the near term, according to TD Economics.