The most recent data release from the Bureau of Economic Analysis (BEA) showed that Personal income climbed 0.4% in May after a 0.2% increase in the prior month. Gains in personal income are largely driven by increases in wages and salaries, 0.3% higher than in April. Real disposable income, income remaining after being adjusted for taxes and inflation, was up 0. 2%. It has been rising steadily since September 2017 and it was 1.7% higher than a year ago.

Personal consumption expenditures (PCE) inched up 0.2% in May after a downwardly revised 0.5% gain in April. Real spending, adjusted to remove inflation, slipped slightly. The decline was due to a drop in household utility spending, as most of the US regions were in between the heating and cooling seasons in May.

In May, the savings rate increased to 3.2%, up from 3.0% in April. Nevertheless, saving remains relatively low from a historical viewpoint. As shown in the graph below, the savings rate was on the downward path since 2016 when rising consumption contributed to fueling economic growth. The steady growth of disposable income also boosts the future income expectations, which leads to a higher current consumption and lower savings.

Tags: personal income, saving rate