Announced this morning, Personal Income grew 0.4% in April, as expected. Personal Spending grew 0.8% in April, much higher than expected and a strong rebound from the previous month. Real Personal Spending which accounts for inflation increased 0.5% in April, also above expectations. Meanwhile, the personal savings rate as a percentage of disposable income was 4.1%, a drop from previous levels.
Looking at inflation, the PCE Deflator grew 0.4% in April slightly more than expected and grew 4.4% on an annual basis. The Core PCE Deflator, which excludes food and energy prices and is closely monitored by the Federal Reserve, increased 0.4% in April, also slightly more than expected. Core rates grew 4.7% on an annual basis, slightly higher than last month and still well above the Federal Reserve’s target.
Overall, personal income and spending both increased in April, with spending rebounding strongly from the previous month and well above what was expected. Consumers likely dipped into their savings to help maintain their payment levels. Meanwhile, inflationary measures stay elevated, with the annual figure for core rates slightly higher than the previous month and not decreasing. The Federal Reserve is likely to keep policy tight in the months ahead should consumers continue to spend money and inflation measures stay well above their goal. How long consumers can continue to spend in this environment will be key for the economy in the coming weeks.
In all, the yield on the 10-year US Treasury ticks higher following the report and equity futures are slightly higher as we head into the market open.
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