Inflation, income, spending and the savings rate

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United States

The Fed’s favorite inflation gauge, the PCE, rose .2% in April for both headline and core m/o/m with a 1.7% and 1.5% y/o/y gain respectively. About in line with expectations. The story remains the same within the data as durable goods deflation continued while services continued its inflationary trend higher.

Personal income was higher by .4% m/o/m as expected and within that private sector wage and salaries were higher by .8% m/o/m and 3.7% y/o/y. That y/o/y print compares with the 6 month average of 3.3% but is down from a 4.4% pace in the two prior months. Spending also grew by .4% m/o/m but off a higher than expected base as March was revised up by 3 tenths which will lead to an uptick in the next Q1 GDP revision. After two straight months of declines, spending on durable goods rebounded while spending on services continued but at a slower pace in April vs March. On a y/o/y basis, REAL spending was higher by 2.6%. The savings rate held steady at 5.3% for a 3^rd straight month and which is pretty much in line with the 25 year average of 5.4%.

Bottom line, relative to expectations the only thing noteworthy was the upward revision in March spending as spending on durable goods was less negative and service spending was more than originally stated. As for April, real spending surprised to the upside off the higher than expected March base but a savings rate that remains steady points to a consumer that is just trying to just live within their means. The income data was ok but still lack any hoped for acceleration. On inflation, it was uneventful as we enter a time frame where we are now recycling thru the rebound in energy prices.

As for the market response, there wasn’t much of any. Inflation breakevens are unchanged but the 2s/10s spread is lower by another 1 bp to 94 bps. It stood at 100 bps on election day. The dollar is getting jerked around by what Draghi said yesterday, the story that forward guidance at the next ECB meeting will be more neutral and the Fed commentary.

DXY 1 yr