U.S. Consumer Spending Signals Second-Quarter Rebound On Track
The consumer is on track for a second-quarter comeback after a weak stretch at the start of the year, as Americans kept up spending in line with income gains in April, Commerce Department figures showed Tuesday.
HIGHLIGHTS OF PERSONAL INCOME AND SPENDING (APRIL)
- Purchases increased 0.4% m/m (matching est.), most since December, after 0.3% rise in March
- Incomes rose 0.4% m/m (matching est.) after 0.2% gain
- Price gauge tied to consumption rose 0.2% m/m (matching est.), rose 1.7% y/y (matching est.)
- Excluding food and energy, prices rose 0.2% m/m (est. 0.1% rise), rose 1.5% y/y (matching est.)
The pickup in nominal consumer purchases shows Americans appear more eager to spend in the second quarter following the weakest gains since 2009 in the January-March period. Household balance sheets that have been strengthening with a tightening labour market and rising wages should help buoy spending as the broader economy gains momentum. Wages and salaries rose 0.7 percent from the previous month, matching the fastest gain since April 2016. While Federal Reserve policy makers should take some comfort that the results were in line with forecasts and core prices exceeded estimates, their preferred inflation gauge did slow down on a year-over-year basis, slipping slightly further away from the 2 percent annual target. The central bank is expected to raise interest rates at its June meeting, though a sustained slowdown in inflation could delay another hike this year.
- Saving rate unchanged at 5.3 percent in April
- Adjusted for inflation, purchases increased 0.2 percent last month after a revised 0.5 percent gain in March
- Household outlays on services unchanged from previous month after adjusting for inflation; rose 0.6 percent in March
- Spending on goods rose 0.7 percent after adjusting for inflation, up from 0.3 percent gain in March
- Disposable income rose 0.2 percent in April after adjusting for inflation
Euro-Area Confidence Unexpectedly Slips From Decade High
Euro-area economic confidence fell for the first time this year and consumers’ outlook for inflation weakened, pointing to subdued price pressures. The European Commission’s index of executive and consumer sentiment fell to 109.2 in May from a revised 109.7 in April. While that fell short of economists’ expectations, the gauge remains close to the highest level in a decade. Another measure showed 12-month price expectations declined for a second month. The report may reinforce European Central Bank President Mario Draghi’s view — last expressed just a day earlier — that the region still needs “an extraordinary amount of monetary policy support.” He has urged patience in outlining an exit strategy from negative rates and a 2.3 trillion-euro ($2.6 trillion) bond-buying program even as he’s acknowledged that that the upswing is becoming increasingly solid and broad-based. The decline in the confidence gauge marks the first modest stumble by the euro-area economy, which has shown continued signs of strength this year. IHS Markit, which publishes a monthly activity index, said last week that the economy is growing at a pace that would warrant tighter monetary policy if it wasn’t for weakening inflation.
China to launch new gauge to improve interbank interest rate system
China will launch a national transaction gauge to improve the interbank benchmark interest rate system and improve the efficiency of monetary policies, China’s foreign exchange trade platform said in a statement on its website. The gauge will be officially launched on May 31 and will include three fixing interbank repo rates for one-day, seven-day and 14-day contracts. The information will be compiled on the basis of repurchase agreements conducted by deposit-type institutions including policy banks, commercial banks, rural credit cooperations, among others, using bonds including treasuries, central government bills and bonds issued by policy banks as collateral.