The Personal Consumption Expenditures (PCE) price index rose by 0.2% so the net effect from a second-quarter GDP standpoint is a more modest 0.2% increase in spending and income.
April was mostly a favorable month for the consumer who benefited from strong wage gains, kept money in the bank, and was an active shopper at least compared to the first quarter. Consumer spending opened the second quarter with an as-expected 0.4 percent gain with strength in durables spending, including vehicles, offsetting another subpar increase, however, for services at only 0.3 percent. Personal income rose 0.4 percent in April with the wages & salaries component posting an outsized 0.7 percent gain and offsetting weakness in proprietor income and interest income. The savings rate held at 5.3 percent for a third straight month.
Inflation data in this report, which are the FOMC’s key inflation gauges, are more subdued than the spending readings. The core PCE (less food & energy) managed a 0.2 percent monthly gain but the year-on-year rate slipped another 1 tenth to 1.5 percent. This is the lowest rate since December 2015 with this year’s weak pressures having erased a full year of improvement. Overall prices also rose 0.2 percent with this year-on-year rate also lower, down 2 tenths to 1.7 percent.
A small positive in the report is an upward revision to March spending from no change to plus 0.3 percent. That’s a positive, however, that falls into the first quarter, not the second which is the focus right now. Consumer spending put in a respectable April but nothing spectacular which some had been expecting given positive seasonal factors including the inclusion of Easter. But the inflation readings are very quiet and won’t be raising expectations much further for a rate hike at the June FOMC.
Real PCE Spending Year-Over-Year
The above chart puts things in proper perspective.
Consumer spending accelerated at a rapid pace coming out of the recession, fell back, jumped to a new high, and has been hovering between two and three percent.
A June rate hike is now baked in the cake even if the economy is slowing.
Mike “Mish” Shedlock.