Personal income and spending rises strongly in April, affirms strong recovery in Q2

Personal income and spending in the U.S. both rose in the month of April, coming in line with the consensus expectations. Personal income and spending both were up 0.4 percent sequentially. In real terms, personal spending was up 0.2 percent, driven by a 1.1 percent rise in durable goods.

Services spending remained greatly flat in real terms, following a huge rebound in March of 0.6 percent. Consumer prices were up 0.2 percent in April, bringing the year-on-year inflation rate to 1.7 percent from March’s 1.8 percent. Core prices, stripping food and energy, were also up 0.2 percent sequentially, bringing the year-on-year price growth to 1.5 percent. Meanwhile, the personal saving rate was stable at 5.3 percent in April.

Strong spending in April, along with upward revisions to March data put spending on track to grow a bit above an annualized pace of 3 percent. Personal spending gained momentum through the March quarter. The surge in durable goods is especially encouraging that in spite of the first quarter weakness, consumer continue to be confident to buy big ticket items.

The report also showed that there was a continued rise in real income growth. After slowing down sharply at the end of last year, real personal income rose 3.8 percent annualized in the last three months. That, along with strong job growth should support healthy consumer spending through the rest of the year.

“Given the strength in the labor market, and the number of one-time factors that have put downward pressure on inflation recently, we think the Fed will be inclined to look past the recent softness and hike rates a quarter point in June”, stated TD Economics in a research report.