U.S. personal income rises slightly below expectations in March, consumer spending rebounds

U.S. personal income rose slightly below expectations in March. Personal income rose 0.3 percent, as compared with the expected rise of 0.4 percent. Adjusted for inflation and removing taxes, real disposable income rose 0.2 percent in the month. In real and nominal terms, personal spending rose strongly by 0.4 percent, as sequential price growth was roughly flat. All major components improved in the month, with real durable goods leading the way up 1.1 percent and non-durable goods and services rising 0.3 percent.

Price growth in the month was held down by energy prices, which dropped 2.8 percent in March. Still, headline inflation rose 2 percent year-on-year, reaching the Fed’s target for the first time in a year. In the meantime, core inflation rose 0.2 percent sequentially in March, taking core inflation to 1.9 percent year-on-year, its highest reading since January 2017. The personal saving rate dropped two ticks to 3.1 percent.

With tax cuts continuing to underpin income, spending is expected to bound back soundly, bringing real GDP growth along with it, stated TD Economics in a research report. Inflation continues to gain traction. Services inflation, especially, is notable, rising to 2.8 percent year-on-year – its highest level in almost a decade.

“The acceleration in spending alongside faster inflation will be a point of conversation as the Federal Open Market Committee meets this week to deliberate on interest rates. While the Fed is unlikely to raise the fed funds rate at this meeting, it will set the stage for an increase at its meeting in June”, added TD Economics.

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