Americans kept up spending in May, even if their wages weren't keeping up with prices

Consumer spending is holding up in America, despite prices going up at a higher rate in recent months. There was more proof of that in Thursday’s income and spending report for May.

Personal income increased $181.6 billion (0.7 percent at a monthly rate) in May, according to estimates released today by the U.S. Bureau of Economic Analysis (BEA). Disposable personal income (DPI)— personal income less personal current taxes—increased $164.9 billion (0.7 percent), and personal consumption expenditures (PCE) increased $156.1 billion (0.7 percent)….

The $156.1 billion increase in current-dollar PCE in May reflected increases of $94.3 billion in spending on services and $61.8 billion in spending on goods.

Real PCE increased $43.8 billion (0.3 percent at a monthly rate) in May.

0.7% increases in spending and incomes over one month are pretty good, and above the rate of inflation, as the increase in real PCE indicates.

But you dig into that income part, and this stands out.

The May increase of $181.6 billion in personal income primarily reflected increases in farm proprietors’ income and compensation.
• The increase in farm proprietors’ income reflected an increase in payments from the American Relief Act of 2025. In May, The U.S. Department of Agriculture issued a second round of Supplemental Disaster Relief Program payments to producers.

OH? The increase is income is mostly due to farm program payments?

That’s a second round of farm payments signed off on to allow for relief from damages due to natural disasters in 2023 and 2024. It led to a increase in farm income of nearly $60 billion (annualized) in May.

If you just deal with wages and related compensation for workers, it’s a lesser 0.4% increase for May – not much different than what we’ve seen for most of 2026.

And a 0.4% monthly increase also shows up in this report in another areas, as the PCE price index had its inflation rate go up by that same amount.

From the preceding month, the PCE price index for May increased 0.4 percent. Excluding food and energy, the PCE price index increased 0.3 percent.

That 0.3% increase in the core PCE index may be more concerning than the overall increase, because it shows that prices are up in areas beyond gasoline. It means core inflation will likely stay high in future months, even if there is a reprieve in June’s overall inflation number due to gas going down from its highs in May.

Add that inflation figure to what we’ve had since last May, and it’s another report that shows 12-month increases going over 4% overall, and well over 3% for core.

This results in the US personal savings rate staying at its multi-year low of 3.0%, the lowest it’s been since the peak inflation days of Summer 2022, and half of what it was at the start of 2024.

Along with other data, it indicates that “higher inflation but real GDP keeps growing” is going to be the story of the second quarter of 2026 for the US economy. That’s good if you want to keep jobs, but those jobs still doesn’t seem to have their wage growth keep up with the higher prices, so it’s the savings that keep bleeding away.

It also gives no reason for the Fed to cut interest rates, and if core inflation keeps rising above the 3% level, there will be a need to raise rates sooner than later to encourage more savings and stop speculation Bubbles from causing even more damage when they inevitably deflate.

Sure, we will likely see a reprieve in the headline inflation numbers for June. But if work-related income continues to be stagnant, it's not going to matter that much to Americans who spent their savings in the gas price spike of 2026. And unlike 2022, there isn't multiple years of COVID-related stimmy checks and other assistance that were banked, nor is there the same level of job and wage growth that we had four years ago.