Tuesday, June 28, 2011

Personal Consumption Expenditures

Personal consumption expenditures fell 0.1% in May following the same decline during April. On a three-month change basis, the three-month average of real consumer spending rose only 1.5% (saar) in May, down from a cyclical peak of 4.0% during December, and the slowest pace since January 2010.

The good news is that the recent weakness in consumer spending was mostly in durable goods consumption, especially in auto sales, and probably temporary. Over the past three months, outlays on durable goods rose just 0.8% (saar), the weakest since the start of 2010. The spike in gasoline prices during the spring certainly depressed such sales. The shortage of autos attributable to Japan’s earthquake also dampened sales. The outlook for auto sales in coming months is improving as gasoline prices fall and auto production rebounds.

Let’s not get too excited. There are a number of chronic problems that will continue to weigh on consumers for a while. The labor market remains challenging. There is plenty of deleveraging ahead. Home prices are still falling. Income inequality is widening. So while durable goods spending should rebound during the second half of the year, the pace of overall spending may remain subdued as evidenced by the lackluster growth rates over the past three months of 1.3% (saar) in real nondurable goods and 1.6% in real services, based on three-month averages.

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