U.S. consumer spending starts Q2 on the back foot

U.S. personal income rose by 0.4% m/m in April, slightly above market expectations for 0.3%. Personal spending remained flat in nominal terms, below the consensus forecast of 0.2%. The personal consumption expenditures price index also remained flat on the month, below expectations of a gain of 0.1%. On a year-over-year basis, price growth decelerated to 0.1%.

The miss on consumption is particularly disconcerting as it puts spending activity on the back foot to start the second quarter and suggests that there may be other factors beyond poor weather weighing on consumption.

The softer than expected reading on consumer spending implies weaker real GDP growth for the second quarter, with our current tracking for 1.5%-2.0% (annualized), notes TD Economics

Perhaps one silver lining in an otherwise weak report was the bounce back in personal income. The gains in income are due mainly to an increase in wages and salaries, reflecting the stronger labor market performance seen over the past month. 

According to TD Economics, continued gains in household income will be a key factor in underpinning the pick-up in consumption activity over the remainder of year.