Commerce Dept: People Are Spending More on Gas, Less on Cars

Overall consumer spending fell in May, driven largely by spikes in fuel and housing costs, the U.S. Commerce Department said Thursday (June 30).

According to figures from the department’s Bureau of Economic Activity (BEA), personal consumption expenditures (PCE) were up 0.2% last month but dropped 0.4% when adjusted for inflation. Likewise, personal incomes were up 0.5% for the month but dropped 0.1% when inflation was taken into account.

The 0.2% spending gain was the smallest increase recorded by the BEA so far this year, and the first time in 2022 when the PCE has dropped when adjusted for inflation.

Meanwhile, the PCE price index for the month rose 6.3% from May 2021, a sign of higher prices for both goods and services. Energy prices rose 35.8% while food prices rose 11%.

“Personal outlays increased in May, reflecting an increase in consumer spending for services that was partly offset by a decrease in consumer spending for goods,” the BEA said, with the largest decline coming in the automotive sector.

Earlier this week, the Consumer Confidence Index reached its lowest level in 16 months, falling from 103.2 in May to 98.7 for June. And the Expectations Index, which measures consumers’ feelings about larger business and market conditions as well as income, fell to its lowest point in more than nine years.

Read more: Inflation Concerns Drive Down Consumer Confidence Index

Lynn Franco, senior director of economic indicators with The Conference Board, said the lower numbers indicate rising concerns about inflation, higher prices and the risk of a recession.

“Purchasing intentions for cars, homes and major appliances held relatively steady — but intentions have cooled since the start of the year, and this trend is likely to continue as the Fed aggressively raises interest rates to tame inflation,” she said. “Meanwhile, vacation plans softened further as rising prices took their toll. Looking ahead over the next six months, consumer spending and economic growth are likely to continue facing strong headwinds from further inflation and rate hikes.”