The May report Personal Income and Outlays from the Bureau of Economic Analysis gives us nearly half the data that will go into 2nd quarter GDP, since it gives us 2 months of data on our personal consumption expenditures (PCE), which accounts for nearly 70% of GDP, and the PCE price index, the inflation gauge the Fed targets, and which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated.  This same report also gives us monthly personal income data, disposable personal income, which is income after taxes, and our monthly savings rate.  However, because this report feeds in to GDP and other national accounts data, the change reported for each of those metrics is not the current monthly change; rather, they're seasonally adjusted amounts expressed at an annual rate, ie, they tell us how much national income and spending would change over a year if May’s change in seasonally adjusted income and spending were extrapolated over an entire year.  However, the percentage changes are computed monthly, from one month's annualized figure to the next, and in this case of this month's report they give us the percentage change in each annualized metric from April to May....

Thus, when the opening line of the news release for this report tell us "Personal income decreased $874.2 billion (4.2 percent) in May", they mean that the annualized figure for seasonally adjusted personal income in May, $19,839.3 billion, was $874.2 billion, or a bit more than 4.2% less than the annualized  personal income figure of $20,713.5 billion for April; the actual, unadjusted change in personal income from April to May is not given here.  Similarly, annualized disposable personal income, which is income after taxes, fell by nearly 4.9%, from an annual rate of an annual rate of $18,698.6 billion in April to an annual rate of $17,787.5 billion in May.  The reason for the decrease in personal income and disposable personal income can be viewed in table 1 of the Full Release & Tables (pdf) for this release, also as annualized amounts, and was mostly due to a $1,097.8 billion decrease to $5,290.1 billion in personal current transfer receipts from government programs, partially reversing the $3,027.7 increase in personal current transfer receipts in April as coronavirus stimulus checks went out, and which more than offset a $258.3 billion increase to $8,733.3 billion in wages and salaries, which itself partially reversed the $839.7 billion decrease in April's wages and salaries due to the lockdown. Again, remember those are all annualized figures.

For the personal consumption expenditures (PCE) that we're interested in, BEA reports that they increased at a $994.5 billion annual rate, or by roughly 8.2 percent, partially rebounding from the decreases of 12.6% in April and 6.6% in March, as the annual rate of PCE rose from $12,168.2 billion in April to $13,162.6 billion in May. That was after the April PCE figure was revised up from the originally reported $12,013.3 billion annually and March PCE was revised from an annual rate of $13,906.8 billion to an annual rate of $13,925.8 billion, a revision that was already captured by the 3rd estimate of 1st quarter GDP we reported on earlier.  The current dollar increase in May spending included a $338.8 billion or 28.6% increase to an annualized $1,523.9 billion in spending for durable goods, a $208.6 billion or 7.7% increase to an annualized $2,910.7 billion in spending for non-durable goods and a $447.1 billion or 5.4% increase to $8,728.0 billion in annualized spending for services. Total personal outlays in May, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $989.9 billion to a $13,666.1 billion annual rate, which left national personal savings, which is disposable personal income less total outlays, at a $4,121.4 billion annual rate in May, down from the revised record $6,022.4 billion annualized personal savings in April..  As a result of that decrease, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 23.2% in May, after April's record savings rate was revised from 33.0% to 32.2%...

As you know, before those personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption.  That's done with the price index for personal consumption expenditures, which is a chained price index based on 2012 prices = 100, which is computed by the BEA and included in Table 9 in the pdf for this report.  That index rose from 110.006 in April to 110.112  in May, a month over month inflation rate that's statistically 0.09636%, which BEA reports as an increase of 0.1 percent, following a similarly rounded PCE price index decrease of 0.5% reported for April.  Applying that May inflation adjustment to the nominal amounts of spending left reported growth in real PCE at 8.1% in May, after a real PCE decrease of 12.2% in April and a real PCE decrease of 6.4% in March.  Note that when those PCE price indexes are applied to each month's annualized PCE in current dollars, it yields that month's annualized real PCE in those familiar chained 2012 dollars, which are the means that the BEA uses to compare one month's or one quarter's real goods and services produced to another.  Those results are shown in table 7 of the PDF, where we see that May's chained dollar consumption total works out to 11,954.8 billion annually, 8.0689% more than April's 11,062.2 billion, an increase that the BEA reports as 8.1%, even as the full decimal fractions are used in all their computations...

  However, to estimate the impact of the change in PCE on the change in GDP, such month over month changes don't help us much, since GDP is reported quarterly.  Thus we have to compare April and May's real PCE to the the real PCE of the 3 months of the first quarter.  While this report shows PCE for all those amounts monthly, the BEA also provides the annualized chained dollar PCE for those three months in table 8 in the pdf for this report, where we find that the annualized real PCE for the 1st quarter was represented by 13,179.0 billion in chained 2012 dollars..(note that's the same as is shown in table 3 of the pdf for the revised 1st quarter GDP report).  Then, by averaging the annualized chained 2012 dollar figures for April and May, 11,062.2 billion and 11,954.8 billion respectively, we can get an equivalent annualized PCE for the two months of the 2nd quarter that we have data for so far.  When we compare that average of 11508.5 billion to the 1st quarter real PCE representation of 13,179.0 billion, we find that 2nd quarter real PCE has fallen at a 41.85% annual rate for the two months of the 2nd quarter that we have data for at this point...(note the math used to get that annual growth rate: 1 - ((( 11,062.2 + 11,954.8) /2 ) / 13,179.0 ) ^ 4  = 0.418506). That's a pace that would subtract 29.06 percentage points from the growth rate of the 2nd quarter by itself, with that computation based on the unlikely assumption that there'd be no improvement in June PCE from the April-May average.

(Note: the above was excerpted from my weekly economic synopsis at Marketwatch 666)