Personal Income and Spending May Limit Q2 GDP Recovery

By Jon C. Ogg Published Jun 26, 9:20AM EDT

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We have already seen a slightly lower reading on weekly jobless claims on Thursday, but the more important report is on personal income and spending. The U.S. Commerce Department reported that personal income rose by 0.4% in the month of May, and consumer spending rose by 0.2% in May.

All in all, this shows a cautious spending environment — and an environment where higher prices may be the key driver of that spending increase. After all, oil has ticked up and April’s spending was flat. That -2.9% GDP reading in the first quarter is still fresh in economists’ minds, and consumer spending makes up the lion’s share of GDP. If you adjust for inflation, inflation-adjusted consumer spending was up only by 1% in the first quarter.

Fortunately, this is wage growth for five consecutive months. Still, that paves the way for retailers to charge more. Back to the inflation argument. On a year-over-year basis, the report would look like a gain of 3.5% in personal income and a gain of 3.7% in spending.

The U.S. economy is expected to have a snap-back GDP growth report. The problem here is that consumer spending (again, the dominant factor in GDP) is remaining weak and the uptick is based on higher prices. That means that people are effectively not buying more than they were previously — they are just paying a tad more for the same goods.

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About the Author Jon C. Ogg →

Jon Ogg has been a financial news analyst since 1997. Mr. Ogg set up one of the first audio squawk box services for traders called TTN, which he sold in 2003. He has previously worked as a licensed broker to some of the top U.S. and E.U. financial institutions, managed capital, and has raised private capital at the seed and venture stage. He has lived in Copenhagen, Denmark, as well as New York and Chicago, and he now lives in Houston, Texas. Jon received a Bachelor of Business Administration in finance at University of Houston in 1992. www.247wallst.com.