INDICATOR: May Income and Spending

KEY DATA: Consumption: up 0.1 percent; Inflation Adjusted: up 0.2 percent; Disposable Income: up 0.2 percent

IN A NUTSHELL: With wages going nowhere, households are not able to spend more and that is a real issue for the economy.

WHAT IT MEANS: If growth is going to pick up, it will have to come from consumers as businesses have become cautious and Europe is a mess.

Well, households seem to be rebelling about being the economic savior and instead are buying more only cautiously. Consumption rose in May but not at a particularly rapid pace.

The big problem is that vehicle sales tanked and that led to a large fall off in durable goods demand. I suspect that will change sharply when we get the June numbers, so I am not that worried. As for softer goods, the drop in spending was largely due to price declines in energy. Adjusting for those price cuts, there was an increase in nondurables consumption.

Lower gasoline prices are coming at a good time and we could see summer travel pick up as a result. But for me, the issue is services, which is nearly two-thirds of consumption and nearly forty-five percent of GDP. We saw a second month of moderate increases after a long period of minimal gains.

That could mean people are starting to buy the little things that make their lives better and if that is the case, spending could pick up going forward.

For people to get back into the malls and showrooms, incomes will have to rise faster than we are seeing. The big problem is wages, which are simply flat-lining.

If you don’t have more money to spend, you either don’t spend more or you take it out of savings.

With confidence fragile, the willingness to draw down on the nest egg is not great. Indeed, the savings rate rose to 3.9 percent in May from 3.7 percent in April.

MARKETS AND FED POLICY IMPLICATIONS: This report was basically what was expected: A little more spending but nothing great and modest income increases. That just does not cut it.

Once again, the need to retain profits rather than pass them through, at least in part, to labor in the form of higher wages is allowing earnings to hold up but it is also restraining spending gains.

I know, I sound like a broken record on this but that is the way things work.

As long as there is no incentive to raise wages, and with the unemployment rate above 8 percent there is little pressure to do that, firms will keep wage gains to a minimal. And with uncertainty about Europe and the election, the other source of wage and salary income increases, increased hiring, is also likely to remain muted.

Can the Fed do anything about this? No.

Lower rates or more liquidity do nothing in this environment. Can the government do something? Only if it wants to spend more and there is little chance that would happen with deficits so high at the federal, state and local levels.

Reductions in corporate taxes would not lead to higher wages or more hiring either. With $3 trillion in liquid assets already on the books, it is not cash flow that is stopping job creation, it is the lack of demand and uncertainty about the future.

Personal income tax cuts would add to the deficit, a nonstarter in this political year. It looks like we are stuck in this slow growth economy at least through the end of the year.