The Bureau of Economic Analysis (BEA) released its report Friday showing personal income climbed 0.7 percent last month, adding $181.6 billion, with disposable income rising by that same margin. Americans didn't sit on that extra cash, with personal consumption expenditures (PCE) surging $156.1 billion, also up 0.7 percent. But once you strip out inflation, real spending only gained 0.3 percent (a reminder that rising prices are quietly chipping away at purchasing power even as the headline numbers look strong).

Inflation isn't going away quietly. The PCE price index rose 0.4 percent from April and sits 4.1 percent above where it was a year ago. Strip out food and energy and the core reading comes in at 3.4 percent. Both figures are well above the Federal Reserve's 2 percent target, and notably, they've accelerated for two consecutive months now. Worth mentioning: the BEA also revised historical numbers related to legal services inflation (a quiet tweak that can shift the narrative even though it changes nothing about what people actually feel paying for groceries). With the central bank locked into a "data-dependent" approach, a print like this makes any near-term rate cut conversation significantly harder.

Meanwhile, households are keeping up their spending, just not from a position of strength. Total personal outlays, which includes interest and transfer payments, climbed nearly $160 billion. But savings landed at only $704.2 billion, putting the personal saving rate at 3.0 percent of disposable income. That's hovering near the lows recorded before the 2008 financial crisis, and history shows that thin savings buffers leave families exposed when credit conditions tighten. On the spending breakdown, goods purchases rose $61.8 billion while services added $94.3 billion, continuing the familiar post-pandemic shift toward travel, healthcare, and entertainment.