KEY DATA: Consumption: +0.3%; Disposable Income: +0.5%; Prices: +0.1%/Jobless Claims: 346,000 (down 9,000)
IN A NUTSHELL: "Wages and salary growth remains sluggish and that is what is holding the economy back."
WHAT IT MEANS: The economy limped along in the first quarter of the year and it looks like growth will not be much better in the spring quarter. Household spending rose moderately in May but we continue to see little gains in the key services component. As I have noted before, services are two-thirds of all spending and forty-five percent of the economy. While rising vehicle sales can help, we cannot get strong consumption or economic growth without spending on services picking up. Will that happen? Not unless we see better increases in wages and salaries. There was a nice rise in personal income and in labor compensation, but the level is still somewhat dismal. But the major reason there was a large rise in disposable income, the money we have left after the government gets it take, was a rebound in government social benefits, including Social Security, Medicare and Medicaid. That accounted for half the rise in personal income. Still, with income growing faster than spending, the savings rate did increase, though the 3.2% pace is nothing great. The one thing that is helping is minimal inflation. Over the year, consumer costs are rising at about a 1% pace, about half what the Fed would like to see.