Income and Spending Virtually Flat in May

Compared to April, real personal income excluding government transfers and consumer spending on durable goods were virtually flat in May, with income up just 0.05% and spending up just 1.1%. The story is a little different compared to last year. Income was down 0.09%, and spending was up 11.3% compared to May 2009. This last set of numbers shows the trend in the economy for most of the last year – despite real personal income excluding government transfers remaining flat, consumer durable goods spending has continued to rise. While the growth in spending is a positive sign for further growth in industrial production and machine tool sales, there is cause for some cautiousness as my three main leading indicators for consumer spending are pointing to flat or contracting spending in the future. The apparent disconnect between income and spending is not sustainable long term. Either income needs to increase, or spending will likely reverse course.