U.S. consumer spending was unchanged in May for the first time in almost a year, likely reflecting a plunge in auto sales, according to a government report on Monday, that also showed a build-up in underlying inflation pressures.

Chicago Fed Midwest factory activity up in May

COMMENTS:

ALAN LEVENSON, CHIEF ECONOMIST, T. ROWE PRICE, BALTIMORE

It's not as significant a release mostly because in terms of the spending we already knew the vehicle piece and the rest of the goods sector from retail sales...

It means we've got moderate underlying income growth based on the expectation the labor market recovery is going to continue and on the spending side we had an interruption, again because of vehicles.

If there's news here it's that the price index was up 2/10s of a percent, the personal spending, in February-March it was 4/10 of a percent, the inflation in energy fell by 1.2 percent, so we're getting less of a drag on energy coming through.

STEPHEN STANLEY, CHIEF ECONOMIST, PIERPONT SECURITIES,

STAMFORD, CONNECTICUT

We will be trimming the consumption number for Q2 and GDP for Q2. That's worth a couple of tenths of a point. It was a little bit of a blow to consumers from the higher energy prices and the supply chain issues. We'll see a nice rebound in third-quarter GDP on the back of full production in the auto industry because it was a big drag in the second quarter.

As for the core PCE, it's very firm obviously, though we won't be seeing a 0.3 percent print every month. I do think the trend is clearly accelerating in core inflation. By and large, the underlying inflation picture has picked up since the turn of the year.

ERIC GREEN, CHIEF ECONOMIST AND HEAD OF RATES STRATEGY, TD

SECURITIES, NEW YORK

The data here is still reflecting the forces that were driving the soft patch over this period of time. Real spending was down for the second consecutive month, not by a lot, but it pretty much ensures that you're going to get a weaker GDP number in Q2 in the top side of 2 percent and most likely lower, because spending will have been closer to 1 percent over the quarter.

You had a nice pop in the core PCE deflator, this is now beginning to turn higher, the momentum of which is pretty strong and it's going higher again. The data sets up a situation in which the pent up demand from the slowdown in consumer spending gives way, and will do so in an inflationary environment and that will force the Fed to move a lot sooner than the market expects. It should be a lot better in June and even better again into the third quarter. It sets off a very positive handoff for Q3. There's a great deal of pent up demand, and as energy prices go the way they have been going then I think you're going to see much more evidence of that over the course of the second half of the year.

PETER CARDILLO, CHIEF MARKET ECONOMIST, AVALON PARTNERS, NEW

YORK

The numbers that we got today were somewhat disappointing in the sense that we're seeing a slowdown in spending, but of course we're not seeing any reversal into negative territory.

The spending a result of 0.3 percent was just in line with what we were thinking.

In terms of economic activity, we're in a bit of a slowdown and we're not going to see stronger numbers until maybe the second month of the quarter. So we should continue to see numbers that reflect a softer economic environment.

In terms of the market, the market is focusing on the economic slowdown. I think we're probably going to have a mixed session for most of the day.

LOU BRIEN, MARKET STRATEGIST, DRW TRADING GROUP, CHICAGO

A weaker than expected headline number with a revision down for the previous month sort of goes in line with what we had for May, with core a little bit stronger than we expected. We've seen some of that commodity price pressure reverse itself since then so it may be transitory.

This is one of those very lagged numbers so while it is an important one it's not very tradable.

DAVID SLOAN, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON

REUTERS

May's personal income and spending report suggests that in real terms both series are going to produce barely positive outcomes in the second quarter, and while lower energy prices and fading of short term supply issues in the auto sector may allow some improvement in Q3, the data does show that core inflationary pressures have gained some momentum. While there are no major surprises, there is little good news in this report.

Inflation