U.S. Personal Income and Spending Rose 0.7% in May, Exceeding Expectations
By TopHolding Editorial · Thursday, June 25, 2026 at 12:00 AM
U.S. personal income and spending each advanced 0.7% in May, surpassing analyst forecasts. Inflation remains elevated, with the PCE deflator rising 4.1% annually, but a significant portion of income growth stemmed from one-time agricultural payments.
U.S. personal income and personal consumption expenditures each increased 0.7% in May, both exceeding economists' expectations. Personal income growth outpaced the consensus forecast of +0.4%, while personal consumption narrowly beat the +0.6% projection. Over the past year, personal income has risen 3.8%, and spending has increased by 6.3%.
Disposable personal income, representing income after taxes, also saw a 0.7% rise in May and stands 4.1% higher than a year ago. A notable factor in this income growth was a second round of payments to agricultural producers through the Supplemental Disaster Relief Program, which addresses losses from natural disasters in 2023-2024. Private sector wages and salaries advanced 0.4% in May, contributing to a 4.1% annual increase. However, this wage growth has merely kept pace with inflation, indicating no real gain in purchasing power for many.
Inflation, as measured by the overall Personal Consumption Expenditures (PCE) deflator, climbed 0.4% in May, bringing the year-over-year increase to 4.1%—the highest level since early 2023. The "core" PCE deflator, which excludes volatile food and energy prices, rose 0.3% in May, with its annual increase reaching 3.4%. This marks an uptick from the 2.8% pace observed in the twelve months ending May 2025. After adjusting for inflation, "real" consumption expanded by 0.3% in May and is up 2.1% from a year ago.
Consumer spending in May was broad-based, with significant increases in financial services and insurance, healthcare, and housing and utilities. Goods spending, including energy costs, saw a 0.9% jump, while services spending rose 0.6%. The personal saving rate remained at 3.0% in May, matching the lowest level recorded since the summer of 2022. While this low saving rate supports current spending, its long-term sustainability is a concern. The Federal Reserve is anticipated to closely monitor this data as it assesses monetary policy in the wake of shifting geopolitical factors and recent declines in energy prices.
Key terms
1. Personal Consumption Expenditures (PCE) Deflator: A measure of inflation that tracks the average change over time in the prices paid by urban consumers for goods and services. It is the Federal Reserve's preferred inflation gauge.
2. Disposable Personal Income: The amount of money that households have available for spending and saving after income taxes have been deducted.
3. Personal Saving Rate: The percentage of disposable personal income that households save, rather than spend on consumption.