by Calculated Risk on 6/27/2013 10:33:00 AM
Thursday, June 27, 2013
Personal Income increase 0.5% in May, Spending increased 0.3%
The BEA released the Personal Income and Outlays report for May:
Personal income increased $69.4 billion, or 0.5 percent ... in May, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $29.0 billion, or 0.3 percent.The following graph shows real Personal Consumption Expenditures (PCE) through May (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.2 percent in May, in contrast to a decrease of 0.1 percent in April. ... The price index for PCE increased 0.1 percent in May, in contrast to a decrease of 0.3 percent in April. The PCE price index, excluding food and energy, increased 0.1 percent, compared with an increase of less than 0.1 percent.
![Personal Consumption Expenditures](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiuypje66INuHvABaIMoLJUCF8seb8zxo0s06xrnTrIJpXZfZmKiTnq52pNMRureQu3cdZh85dBipg5zXCWD9rhfjmkYv6GbII5E0BHPzuT_9WPAbOti0IDcsVisDbH5BpLqI3d5g/s320/PCEMay2013.jpg)
The dashed red lines are the quarterly levels for real PCE.
Using the two-month method to estimate Q2 PCE growth (first two months of the quarter), PCE was increasing at a 1.8% annual rate in Q2 2013 (using mid-month method, PCE was increasing at 1.5% rate). This suggests GDP growth will be weaker in Q2 than in Q1.
Last week I posted Four Charts to Track Timing for QE3 Tapering . Here is an update to the inflation charts.
![FOMC Projection PCE price Tracking](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgVd5q_OZxnX8VEuCmty8waOlDlAKbqfx3h5r3Z1bCtiC8x_l2525e-MLJ0GRgW1BfzVV4dXgaA4NnahjoqhI1GdAwxXsF6xI2MzWPQ6GkCd5uiZTx96g0h-AJPrFXv4IYjWO6Aiw/s320/FOMCPCEMay.jpg)
The current forecast is for prices to increase 0.8% to 1.2% from Q4 2012 to Q4 2013.
We only have data through May, but so far PCE prices are below this projection - and this projection is significantly below the FOMC target of 2%. Clearly the FOMC expects inflation to pickup, and a key is if the recent decline in inflation is "transitory".
![FOMC Projection Core PCE Price Tracking](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiEgPp7GVOnDQXSjP1yrhCvo40Otpf0Zd8GJOEOOrMOr3V_jiFFELC-o_3KRkTrc9DZERUZiwY-Y2A3Axexmx8VcjYPEhcKlBTPWL7_B_TyKlAjiMyPb-qoHak4fDKWQCGvqkRc_Q/s320/FOMCCorePCEMay.jpg)
The current forecast is for core prices to increase 1.2% to 1.3% from Q4 2012 to Q4 2013.
Once again we only have data through May, but so far core PCE prices are below this projection - and, once again, this projection is significantly below the FOMC target of 2%. Clearly the FOMC expects core inflation to pickup too.
It is possible that the FOMC could start to taper QE3 purchases in December, but it would take a pickup in the economy AND an increase in inflation. (September tapering is less likely, but not impossible - but the pickup would have to be significant over the next two months).