Economic data was a bit light this week, but we did receive key figures on inflation, income and spending growth, and the final reading for Q1 GDP — all included below. Over the last few weeks, despite a lack of clarity on peace negotiations in the Middle East, gas and oil prices have moved lower which should put downward pressure on the rate of inflation growth.

Bottom Line Up Front

Oil prices have continued to move lower in recent weeks as oil tankers resume moving through the Strait of Hormuz. The inflation readings in today’s edition—covering May—are increasingly behind us and current trends are encouraging. However, low oil stockpiles need to be refilled and that will likely keep a floor on how low oil prices can go over the next several months.

The final Q1 Gross Domestic Product (GDP) reading came in at +2.1%, stronger than previously measured. The upside may prompt analysts to revise full-year growth expectations higher. For the Fed, stronger growth is yet another argument against the case for a rate cut. The elevated inflation data in this report reinforces that case.

For the automotive market, the picture is more constructive than the broader consumer spending environment might suggest. New vehicle transaction trends have remained solid through mid-June, while used-vehicle values are holding at normal seasonal levels. Overall consumer spending appears somewhat muted, but pent-up demand accumulated over the last several years continues to support auto sales, a durable tailwind that has proven more resilient than many expected.

The Latest Update on Inflation

The inflation gauge favored by the Fed continued to show acceleration of prices in May, largely in line with consensus expectations. However, as gas prices are now under $4 nationwide, we might expect to see lower inflation trends in future reports.

  • Personal Consumption Expenditures (PCE) inflation rose 0.4% against April levels, coming in just below analysts’ expectations. On a year-over-year basis, the figure is 4.1% higher, the highest rate since April 2023.
  • Core PCE inflation, excluding food and energy, was higher by 0.3% for the third month in a row, and is higher by 3.4% year over year.
  • Inflation was primarily driven by higher spending in services, with financial services and insurance as well as housing and utilities inflation a particular callout.
  • Nondurable goods inflation also contributed significantly to the overall rate of PCE inflation, driven by higher energy costs.
  • With lower energy costs expected in June, we may begin to see a deceleration of the impact of higher energy prices in the overall rate of inflation.

Personal Income and Spending

May income data offered a welcome improvement, though expense growth kept pace and left the consumers’ net financial position essentially unchanged.

  • Personal income rose 0.7% month over month in May and is now 3.8% higher year over year, the strongest annual growth rate since January.
  • Personal spending also rose 0.7% in the month, matching income growth.
  • On a year-over-year basis, expenses are up 6.3%—a gap against income growth that reflects the cumulative toll of inflation and elevated gas prices on household budgets.
  • Adjusted for inflation, real personal expenditures rose by 0.3% in May, as nominal spending growth outpaced the monthly rise in prices.
  • Over the long run, personal income has historically outpaced personal spending by approximately 0.1 percentage point. Since inflation accelerated in 2022, that relationship has inverted: Spending has exceeded income growth by roughly 0.1 percentage point, a persistent pattern that illustrates the financial strain facing the average American household.
  • The personal savings rate held flat at 3% in May, unchanged from April’s already low reading and 1.9 percentage points below the year-ago level.

New Home Sales, Prices, and Building Permits

New home sales and construction activity continued to soften in May, with key metrics coming in below analyst expectations across the board.

  • New single-family home sales fell to 580,000 in May, down from 626,000 in April, below analyst expectations and 6.8% lower year over year.
  • Housing starts dropped to 1.18 million, the lowest level in approximately six years and 8.7% below last year. The decline was driven by a 40% drop in multifamily starts. Single-family starts also fell.
  • The median price for a new home nationwide rose to $424,900 in May, up 2% from April.
  • Building permits declined to 1.41 million, a larger drop than economists expected and 0.9% below April.
Gross Domestic Product Growth

The final estimate for Q1 GDP growth was released last Thursday, showing a stronger result than previously measured, though the composition of growth held some notable surprises.

  • The final Q1 GDP growth rate came in at +2.1%, up from the downwardly revised second estimate of +1.6%.
  • The Q1 result compares favorably to the +0.5% trend in Q4 2025 and is a significant improvement over the Q1 2025 reading of -0.6%, when front-loading of imports ahead of tariff implementation weighed heavily on growth.
  • Investment spending was the largest contributor to Q1 growth, driven by continued AI capital expenditure buildout, accounting for more than a full percentage point of the quarterly gain.
  • Consumer spending, which typically drives the majority of GDP growth, showed a modest increase in Q1. Goods consumption remained soft and changed little across the revisions.
  • The more notable development was in services spending, where the final read came in materially lower than prior estimates.
  • For the automotive market, motor vehicles and parts contributed +0.1 percentage point to GDP growth, positive but minimal. The contribution has been negative in three of the last five quarters.
  • The largest single source of upside relative to the prior estimate was a significant downward revision to imports. As imports subtract from GDP, the reduction in goods imported produced less drag on the headline figure and accounted for nearly all of the improvement between the second and final readings.