Consumers take a break
Are U.S. consumers exhausted from their winter spending spree? Durable goods purchases, the category that includes all products with electronics, fell 2.4% in May after inflation adjustment. Will consumer caution cause a significant slowdown in overall economic growth? Yes and no.
Consumer spending rose at a 3.4% annual rate in the first quarter, but appears to be on track to expand only about 2% in the second. But this is enough to keep GDP rising at a 3%-plus pace with the boosts being provided by government spending, inventory disinvestment, expanded investment, and exports.
Total consumer spending was unchanged in May after two meager 0.1% monthly gains. Spending had risen 1% over the first two months of the year.
The spending pause is not due to lack of money. Consumer income, after inflation and taxes, rose 0.3% in May. Real disposable income has grown three times faster than real consumer spending year-to-date. The consumer financial position can support a higher level of spending. Wages grew at a 5% annual pace in May, the strongest so far in the recovery, though it was partly offset by a temporary weather-related drop in farm income. The pace of layoffs has been declining for five weeks.
Consumers are trolling for bargains. They splurged on vehicles earlier this year when prices were discounted and loan rates were subsidized. More recently, home sales have soared as mortgage rates have declined. Early June data suggests that the May pause in consumer spending growth may be over. Chain-store sales have picked up and subsidized loan rates are back for cars after unit sales dropped 9.5% in May.