Income, Spending, and Inflation

The Bureau of Economic Analysis released a report this morning showing that Personal Income, and that includes transfer payments, fell by 4.2% in May against an expected decline of 6%. That represents quite a turnaround from April’s boost of 10.8% (revised from 10.5%). The value of these numbers is a little iffy since compensation levels have been so distorted by lay-offs, furloughs, and unemployment insurance. Meanwhile, Personal Spending jumped 8.2% after cratering in April by an upwardly revised 12.6%. Analysts were looking for a May gain of over 9%. Adjusted for inflation, Real Personal Spending grew by 8.1% last month after slipping more than 12% in April.

Inflation news also greeted investors this morning through another report from the BEA showing that its Personal Consumption Expenditures Index rose by 0.1% in May leaving the year-over-year rate at an unchanged 0.5%. That measure was downwardly revised by 0.1% from April. Without food and energy, core PCE also made a monthly gain of 0.1% leaving that year-over-year rate at an unchanged 1%. Even if our policy-makers don’t say it out loud, the bigger concern at the moment is deflation, not inflation.

Equity markets are looking a little soft so far and that’s mainly due to growing fears of growing COVID-19 infections. Bond prices are up and the Ten-Year’s yield is down to around 66 basis points. Crude oil has slipped a little bit more to around $38.50 while gold has slipped to around $1,760; a change of around $3.80.