Consumer expenses withdrew in May while inflation warmed up – double bad news

The total cost of May fell by 0.1% from the previous month and income decreased by 0.4%, the trade department reporting Friday. After coming to the heel of the report, which stated that the first quarter of GDP contracted more than expected, the information shows a rapidly declining economy.

« Personal consumption expenditure is weak and are still weakening, » said Eugenio Aleman, Chief Economist of Raymond James Luck.

« We knew that consumers’ demand was in the poor, but yesterday we had a review of the first quarter of GDP, which confirmed that consumption was not so strong. Today’s number just confirmed that this was not one -off. »

Both spending and income figures were distorted by one-off changes. The car’s spending crashed, pulling down the overall expenditure, as the Americans had moved faster to buy vehicles in the spring to reach the tariffs. But for airline tickets, meals and hotels, everyone fell last month – the consumer pressure markings instead of just a change in timing. Services expenditure increased by only 0.1%in May, which is the lowest month’s growth in four and a half years.

« Because consumers are not strong enough to handle them (higher prices), they use less recreational, travel, hotels, these types of things, » said Luke Tilley, chief economist at Wilmington Trust.

Retail sales also fell sharply last month and contracted 0.9%, according to a separate report published last week.

Income also declined after one -off adaptation to social security benefits increased charges in March and April, when some pensioners who had worked for the state and local government to receive higher social security contributions.

Inflation was modestly hot and prices rose in May at an annual interest rate of 2.1%in April. The core prices that close the evaporation of food and energy costs increased by 2.7% a year earlier, compared to 2.6% in April.

During the first three months of this year, consumer expenditure increased by only 0.5% and have been slow in the first two months of the second quarter. Most economists think that May’s figures report to be dramatic down. « The US economy is ready to slow down summer » Loop Economists wrote. « Both consumer spending and business investments are expected to slow down significantly. »

In recent years, consumers have been able to continue consumption thanks to the actual income growth and to increase the interests of some government. « But these two supports are now mostly faded, and the real income image is rapidly weakening as tariffs increase prices, » said the Economist of the Pantheon Macroeconomy. When personal savings are low and consumers are too skilled to borrow, « consumption is likely to slow down much further and soon, » they said.

The actual income has been set steady this year, due to partly the weaker labor market, but also because prices are rising, they wrote. At the same time, inflation – 2.7% per year – is significantly higher than the 2% target of the Federal Central Bank, so it is unlikely that interest rate reductions will be coming at any time.

« As so many uncertainties are still lingering, the Fed is likely to reserve interest rates so far, » said the national financial market Economist Oren Klachkin.