Consumer Spending Signals Second-Quarter Rebound On Track

Patrick T. Fallon/Bloomberg News

The consumer is on track for a second-quarter comeback after a weak stretch at the start of the year, as Americans kept up spending in line with income gains in April, Commerce Department figures showed May 30.

Highlights of Personal Income and Spending

• Purchases increased 0.4% month over month (matching estimate), the most since December, after a 0.3% rise in March.

• Incomes rose 0.4% month over month (matching estimate) after a 0.2% gain.

• Price gauge tied to consumption rose 0.2% month over month (matching estimate) and rose 1.7% year over year (matching estimate).

• Excluding food and energy, prices rose 0.2% month over month (estimated to rise 0.1%) and rose 1.5% year over year (matching estimate).

Key Takeaways

The pickup in nominal consumer purchases shows Americans appear more eager to spend in the second quarter after the weakest gains since 2009 in the January-March period.

Household balance sheets that have been strengthening with a tightening labor market and rising wages should help buoy spending as the broader economy gains momentum. Wages and salaries rose 0.7% from the previous month, matching the fastest gain since April 2016.

While Federal Reserve policymakers should take some comfort that the results were in line with forecasts and core prices exceeded estimates, their preferred inflation gauge did slow down on a year-over-year basis, slipping slightly further away from the 2% annual target. The central bank is expected to raise interest rates at its June meeting, though a sustained slowdown in inflation could delay another hike this year.

Other Details

• Saving rate unchanged at 5.3% in April.

• Adjusted for inflation, purchases increased 0.2% in April after a revised 0.5% gain in March.

• Household outlays on services unchanged in April after adjusting for inflation; rose 0.6% in March.

• Spending on goods rose 0.7% after adjusting for inflation, up from 0.3% gain in March.

• Disposable income rose 0.2% in April after adjusting for inflation.