U.S. personal income rises sequentially in April, personal spending rises strongly

U.S. personal income rose in line with expectations. Income rose 0.3 percent sequentially in April. Adjusted for inflation and removing taxes, real disposable income rose 0.2 percent in the month. Personal spending rose strongly by 0.6 percent in nominal terms in the month, as compared with a consensus expectation of a rise of 0.4 percent. Spending on non-durable goods led the way rising by 0.9 percent, followed by spending on services, which grew 0.5 percent. In the meantime, spending on durable goods rose 0.3 percent. After stripping out inflation, spending rose strongly by 0.4 percent in real terms.

Prices grew 0.2 percent sequentially, lifted by both energy and food prices, which rose 1.5 percent and 0.3 percent, respectively. On a year-on-year basis, headline inflation continued to be the same at 2 percent, consistent with Fed’s target. Core PCE inflation also rose 0.2 percent sequentially, but stayed unchanged at 1.8 percent on a year-on-year basis. The personal saving rate dropped 0.2 percentage points to 2.8 percent, the lowest level since December 2017.

Two consecutive strong prints in consumer spending in March and April reaffirm that U.S. consumers left behind their winter blues and are back in full force, noted TD Economics in a research report. After growing by just 1 percent in the first quarter of 2018, consumer spending is on track to exceed the 3 percent mark in second quarter. This augurs well for GDP growth, which is also expected to come in above 3 percent, stated TD Economics.

“With core inflation still running below 2 percent, there are few signs that the economy is overheating, which allows the Fed to continue with their gradual pace of rate normalization”, added TD Economics.

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