---
title: "Monday Update: Personal Spending Slows in May"
description: In his Monday Update, Commonwealth’s Sam Millette focuses on service sector confidence, the Fed’s June meeting minutes, and the June employment report.
image: https://blog.commonwealth.com/hubfs/Rebrand-Blog-Images/IMO-images/Monday-Update/monday-a.jpg
---

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# [Monday Update: Personal Spending Slows in May](https://blog.commonwealth.com/independent-market-observer/monday-update-personal-spending-slows-in-may)

Posted by [Sam Millette](https://blog.commonwealth.com/independent-market-observer/author/sam-millette) 

This entry was posted on  Jul 5, 2022, 11:45:29 AM

 and tagged [In the News](https://blog.commonwealth.com/independent-market-observer/topic/in-the-news) 

[Leave a comment](https://blog.commonwealth.com/independent-market-observer/monday-update-personal-spending-slows-in-may#comments-listing)

![Monday Update](https://blog.commonwealth.com/hs-fs/hubfs/Rebrand-Blog-Images/IMO-images/Monday-Update/monday-a.jpg?width=300&name=monday-a.jpg)There were several important economic data releases last week, with a focus on business spending, consumer and manufacturer confidence, and the May personal income and spending reports. Personal spending growth came in below expectations during the month, echoing a similar decline in retail sales growth in May. This will be another busy week of updates, with a focus on service sector confidence, the minutes from the Fed’s June meeting, and the June employment report.

##### Last Week’s News

On Monday, the preliminary estimate of the May durable goods orders report was released. Orders of durable goods increased more than expected during the month, as headline orders grew 0.7 percent against calls for a 0.1 percent increase. This strong result was driven by a broad-based increase in orders, as core durable goods orders, which strip out volatile transportation orders, rose 0.7 percent against calls for a 0.3 percent increase. Core durable goods orders are viewed as a proxy for business investment, so this better-than-expected result is a good sign for business spending in the second quarter. Business confidence and spending have been supported by high levels of consumer demand throughout the year, and the continued business spending growth is an encouraging sign that business owners remain confident in the ongoing economic expansion.

On Tuesday, the Conference Board Consumer Confidence survey for June was released. Consumer confidence fell more than expected during the month as the index fell from a downwardly revised 103.2 in May to 98.7 in June against calls for a more modest decline to 100. This result marks two consecutive months of declining confidence and left the index at its lowest level since February 2021. The decline in confidence was primarily driven by souring consumer expectations for the future, which, in turn, was due to fears of persistent inflation. Looking forward, we’ll likely need to see sustained evidence of slowing inflation before we see confidence rebound back to recent highs. Historically, lower confidence levels have served as a headwind for consumer spending growth, so this will be an important area to monitor in the months ahead given the importance of consumer spending on the overall economy.

Speaking of consumer spending, Thursday saw the release of the May personal income and personal spending reports. Spending increased 0.2 percent during the month, down from the downwardly revised 0.6 percent increase in April and below economist estimates for a 0.4 percent increase. Despite the miss against expectations, this still marks five consecutive months of personal spending growth, which is encouraging given the headwinds created by high levels of inflation and sliding confidence. Spending has been supported by healthy consumer balance sheets and high levels of pent-up demand; however, these tailwinds may be starting to fade. The personal income report showed that income increased 0.5 percent during the month, which was up from the 0.4 percent increase in April and in line with economist estimates. This now marks eight straight months of personal income growth, highlighting the continued strength of the labor market and the associated positive impact on workers.

We finished the week with Friday’s release of the ISM Manufacturing survey for June. This measure of manufacturer confidence fell from 56.1 in May to 53 in June against calls for a more modest drop to 54.5. This is a diffusion index where values above 50 indicate growth, so this result still signaled expansion for the manufacturing industry during the month despite the larger-than-expected decline for the index. Manufacturing confidence has remained in solid expansionary territory since the expiration of initial lockdowns in mid-2020, but we’ve seen a downward trend in sentiment this year. The index now sits at its lowest level since June 2020, signaling rising headwinds for the manufacturing industry. High levels of producer inflation driven by supply chain issues and rising material and labor costs have dampened manufacturer confidence this year. That said, manufacturing output has continued to improve in 2022, driven by high levels of consumer and business demand for manufactured goods.

##### What to Look Forward To

On Wednesday, the ISM Services survey for June is set to be released. This measure of service sector confidence is set to drop from 55.9 in May to 54.5 in June. This is another diffusion index where values above 50 indicate growth, so this anticipated result would still signal continued expansion for the service sector during the month despite the expected decline for the index. Service sector confidence has remained in healthy expansionary territory since June 2020; however, we’ve seen confidence decline notably since setting a record high of 68.4 last November. High levels of inflation throughout the economy and labor shortages have served as headwinds for service sector confidence in 2022, and these headwinds are expected to remain in place in the months ahead. That said, continued high levels of demand and a shift from spending on goods to services are expected to keep service sector confidence in expansionary territory.

Wednesday will also see the release of the FOMC minutes from the Fed’s recent June meeting. The central bank elected to hike the federal funds rate 75 bps at this meeting, which was the third meeting in a row with higher interest rates. The Fed’s decision to hike 75 bps rather than 50 was largely anticipated by markets due to the higher-than-expected level of consumer inflation in May; however, the minutes will give economists better insight into the impact of fresh data on the Fed’s decision-making process. The Fed is expected to spend the rest of 2022 and the start of 2023 tightening monetary policy in an attempt to tamp down inflationary pressure. Given the outsized impact that Fed decisions can have on markets, any updates from the central bank will be widely monitored by investors and economists.

On Thursday, the May international trade report is set to be released. The trade deficit is expected to shrink during the month with forecasts calling for a reduction from $87.1 billion in April to $85 billion in May. If estimates hold, this would bring the monthly deficit to its smallest level so far this year after we saw a record $107.7 billion deficit in March. The advance report on the trade of goods showed that the trade deficit for goods declined, as exports increased 1.1 percent while imports dropped 0.1 percent. International trade was a net detractor from overall GDP growth in the first quarter due to the widening of the monthly deficit in March. But, if estimates hold for May, trade may be set to help boost overall economic growth in the second quarter.

We’ll finish the week with Friday’s release of the June employment report. Economists expect to see 275,000 jobs added during the month, down from the 390,000 that were added in May. If estimates hold, this would represent a strong month for job creation on a historical basis, and it would mark 18 consecutive months of job growth. The labor market recovery over the past two years has been robust and impressive and has been the major driver of the overall economic recovery during that period. The underlying data is also expected to remain solid, with the unemployment rate set to remain unchanged at 3.6 percent for the fourth month in a row. The unemployment rate bottomed at 3.5 percent before the start of the pandemic and hit a high of 14.7 percent during the initial lockdowns in April 2020—so the swift improvement over the past two years is encouraging. Given the strength of the labor market and the high levels of inflation in the economy, the Fed is expected to continue slowing the pace of economic growth throughout the rest of the year.

That’s it for this week—thanks for reading!

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The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

The Dow Jones Industrial Average is computed by summing the prices of the stocks of 30 large companies and then dividing that total by an adjusted value, one which has been adjusted over the years to account for the effects of stock splits on the prices of the 30 companies. Dividends are reinvested to reflect the actual performance of the underlying securities.

The Russell 2000 is a market-capitalization weighted index, with dividends reinvested, that consists of the 2,000 smallest companies within the Russell 3000 Index. It is often used to track the performance of U.S. small market capitalization stocks.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

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