US's personal consumption kicks off Q2 with weak momentum

The reported April pullback in auto sales combined with disappointing retail activity suggest that US's consumer spending was very soft at the start of the spring quarter. The BEA is likely to report this week that personal spending increased by just 0.1% m/m after a 0.4% m/m increase in March. In addition to the aforementioned weakness in retail and auto sales, gasoline station sales will also weigh on nominal spending given the decline in seasonally adjusted prices. 
Analysts expect only a modest increase in spending on services. After adjusting for inflation, real personal consumption expenditures were probably flat in April. The April level of real spending would only 0.6% above the Q1 average, which represents very soft momentum at the start of the quarter, forecasts Societe Generale.

"Personal income likely increased by 0.4% in April driven by a modest gain in compensation and another solid increase in rental income. Our projections for spending and income suggest that the savings rate increased from 5.3% to 5.5%, in line with the Q2 average but significantly above the 4.5-4.7% range that prevailed six months ago. Although consumers have pocketed much of the savings from lower gasoline prices,  this will ultimately be spent", according to Societe Generale.

This assumption - which is underpinned by rising income expectations and relatively high levels of consumer confidence - is a critical element of the forecast. With the business sector still recovering from the effects of lower oil prices and stronger dollar, any hope for a meaningful rebound in activity will critically depend on the consumer. Therefore, the performance of the household sector will also be the key factor determining the timing and speed of policy normalization.