Inflation slowed in May, according to data from the Bureau of Economic Analysis (BEA). The overall personal consumption expenditures index rose 0.1% in May from April, down from the 0.4% increase in April. Core (excluding food and energy) inflation was down to 0.3% in May from 0.4% in April. Both inflation measures decelerated on a year-over-year basis. Overall inflation eased to 3.8% in May from 4.3% in April while core inflation cooled to 4.6% in May from 4.7% in April. 

Nominal personal income was up 0.4% in May from April, with labor market compensation up 0.5%. Nominal after-tax income increased by 0.2% in May. Real (inflation-adjusted) personal income was up 0.3% in May from April following a 0.1% decline in April (revised from an initial flat reading) and a 0.3% increase in March (revised from 0.2%). 

Monthly nominal consumer spending growth slowed to 0.1% in May from 0.6% in April. Real purchases for May were flat driven by a 1.2% decline in consumer spending on durable goods. Real consumer spending growth for April was revised down to 0.2% from 0.5% while the flat reading in March was unrevised. Real consumer spending has been flat in three (February, March, and May) of the past four months. 

With a bigger increase in income than spending for the month, the personal saving rate rose to 4.6% in May from 4.3% in April. The saving rate has been 4% or higher in every month of 2023, up from below 4% through most of 2022. 

The slowing in consumer spending and inflation in May points to an economy losing momentum. While consumers and businesses continue to show remarkable resilience, economic headwinds are increasing. The drawdown in excess household savings will likely accelerate in the second half of the year as the summer travel season kicks off. Other headwinds include inflation, tighter financial conditions, and softer job and wage gains. PNC expects consumer spending to decline further in the second half of the year, leading to a mild recession starting in late 2023 or early 2024.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance, and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.