Americans' personal income slipped 0.1% in May, the first setback in a year, but consumer spending shot up by 0.9%, the biggest rise in five months, the government reported today.
The Commerce Department said that the rare drop in personal income followed a big 1.2% increase in April. However, both months were influenced by an unusually large swing in subsidy payments to farmers, which shot up in April only to fall in May.
The report said the 0.9% jump in personal consumption spending, which includes consumer payments for virtually everything except interest on debt, was the biggest gain since a 1.8% rise in December.
The rise was fueled by strong increases in purchases of both durable and nondurable goods. Purchases of durable goods such as autos rose at an annual rate of $13 billion in May, after rising an even stronger $15.2 billion in April. Purchases of nondurable goods were up at a $5-billion rate after having declined $9.7 billion in April.
With income growth declining, Americans had to dip into their savings to finance their spending spree.
The savings rate dropped to 4.3% in May, down a full percentage point from a 5.3% rate in April.