American paychecks are getting fatter and spending’s rising, too

Impending personal consumption expending.
Impending personal consumption expending.
Image: Bennett Raglin/AP Images for Big Lots
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The US economy is showing a lot of strength, but wage increases have been the missing piece that would really get things going. There was good news on that front Thursday.

The monthly Bureau of Economic Analysis report on personal consumption expenditures (pdf) shows that Americans are getting higher wages and spending them to boot.

Wage growth showed signs of life in May, rising 0.5% from April, after a few months of really lackluster growth:

And spending grew 0.9%, the fastest monthly rate since 2009:

There’s hope that spending could continue to rally. Capital Economics suggested in a note to clients that Americans are just now dipping into their savings from low gas prices, even as the gas pump stimulus begins to fade. Economic analysts had for months predicted those savings would spur consumer spending more quickly than they did. But with wage growth on the rise, Americans might gain confidence and be able to support stronger economic growth.

Separately, the Federal Reserve’s preferred inflation gauge, based on the PCE report, is up 0.2% from last year. Stripping out volatile categories like food and energy, the so-called “core” rate is up 1.2%.

Neither figure will bring much clarity to Federal Reserve watchers trying to figure out if inflation will be what spurs a hike in interest rates later this year.