This morning, the government released the latest report on income and consumer spending. The data continues to paint a picture of a sluggish economy with low inflation. The headline numbers are that real (adjusted for inflation) disposable personal income rose by 0.3% in May while real consumption rose by 0.1%. Consumption has risen by 1.9% over the last year, but only at an annualized rate of 0.4% in the last 3 months, confirming a slowdown in consumer spending, which will be reflected in the report on economic growth for the second quarter (to be released in late July). Given that spending rose by less than income in May, the savings rate rose slightly to 3.9%, erasing some of the decline for this year, but still below the rate in January (and all of last year).
On a positive note, consumer inflation was slightly negative in May, led by a decline in energy prices. Over the last year, inflation has been 1.5% while core inflation (excluding food and energy) was 1.8%. Many criticize economists for considering core inflation in the short run, thinking that it's a way to downplay inflation. However, currently inflation is running below core. Why? Though food inflation has been 2.3% since May 2011, energy prices have fallen by 3.8% (remember that the price of a gallon of gas was almost $4 a gallon in Spring 2011). Of course the good news in terms of low inflation is related to the bad news involving sluggish consumer spending; a weak consumer tends to put a lid on price increases.