A 2.7% increase in wages and salaries after a 7.6% April decline was close to our expectation, based on the details of May’s non-farm payroll. The other components of personal income fell by $1.1 trillion (annualized), after surging $2.7 trillion in April, the moves largely on stimulus payments.
Personal spending rose by 8.2% in May after declining by 12.6% in April and 6.6% in March. Durables with a surge of 28.6% are close to February’s level, but a 7.7% rise in non-durables failed to erase April’s decline. Meanwhile services, where the information is mostly new, rose only by only 5.4% after falling by 12.2% in April and 8.9% in March.
The sector most strikingly weak is recreation, up by only 4.5% after falling by 42.4% in April. Other services with a rise of only 2.8% are still weak after falling by 14.5% in April. Health, transportation and food/accommodation all increased by over 20% in May, but in each case April’s decline was not fully reversed.
If June data is unchanged, real disposable income would be up by 39.5% annualized in Q2 while real personal spending would be down by 38.8%. More likely June will see similar changes to May. Then, the respective annualized changes would be up 30.6% and down 31.7%. Consumers have disposable money, but social distancing, often by choice, makes spending on services in particular difficult. Continued high COVID-19 infections may cause that to persist well into Q3 at least.