WASHINGTON — Americans' incomes rose faster than consumption in May as consumers reined in spending on big-ticket items such as cars and appliances in the latest sign that the U.S. economy may be cooling, according to a report released Friday by the Commerce Department.
Coming two days after the Federal Reserve opted to leave interest rates unchanged in favor of waiting for more evidence on the pace of growth in the economy, the report also held good news on the inflation front, showing price pressures were well-contained.
Commerce said spending rose 0.2% in May to a seasonally adjusted annual rate of $6.7 trillion, following a downwardly revised gain of 0.2% in April.
Consumers spent heavily on nondurable goods and on services in May, but higher consumption in those areas was constrained by a 1.1% decline in spending on long-lasting durable goods.
Personal income rose a stronger-than-expected 0.4% to a seasonally adjusted annual rate of $8.23 trillion in May after a downwardly revised April gain of 0.6%.
Much of the increase in incomes was the result of a change in Social Security laws that allowed older workers to collect full payments regardless of income levels. Indeed, private wages and salaries dipped $4.5 billion in May, the Commerce Department said.
"It appears as if there really is some caution developing in the spending habits of consumers," said Joel Naroff of Naroff Economic Advisors.
The report's implicit price deflator, an inflation indicator closely watched by Federal Reserve Chairman Alan Greenspan, was unchanged in May for the second straight month--good news for the inflation-wary central bank.
May marked the second month in a row in which income gains outstripped spending advances.
The report is the latest in a string of signs that six interest rate hikes by the Fed in the last year may have begun to slow the economy.
The trend until recently had been for Americans' spending to outstrip gains in their income as households dipped into past savings, rising wealth and credit cards to finance their shopping sprees.