Nominal personal income came in at 0.4%, which matched the expected rate and is now 3.6% higher than a year ago. Real personal disposable income was a little less positive, rising by 0.2%, with the annual growth rate rising to 1.9%. Consumer spending rose by 0.4%, following 0.2% and 0.4% readings in nominal dollars in March and February, respectively; this matched the forecast increase. Real personal spending was 0.2% higher. Spending in the month (in real terms) was driven by increases in durable goods expenditure (1.1%) and spending on nondurable goods (0.1%). Spending on services was unchanged.
Private sector wages and salaries (roughly 45% of personal income) were up again by a healthy 0.7% in the month (current dollars). Meanwhile, government sector wages and salaries were 0.2% higher; they are now 3.5% higher annually. This annual rate of change is still far below the historical median rate of 6.4% (1960-2016). Private sector wages and salaries increased 3.7% over the last year (historical median was also 1960-2016 = 6.4%). This has slipped from 4.4% in the previous two months. Lastly, the PCE price index and the core price index were both up by 0.2%. The annual change was 1.5% for the core rate and 1.7% for the headline rate (this was the highest headline reading since April 2012).
This was a more solid report following some prior weakness in the first quarter. As we saw in the first-quarter GDP report, consumer spending slowed quite tangibly from 3.5% in the fourth quarter to just 0.6% in the first. The Fed believe this weakness is “transitory”, and certainly to some extent we agree. The quarter was impacted by adverse weather conditions (dampening utilities consumption), a delay in tax return issuances (due to anti-fraud measures enacted), and ongoing residual seasonality, which the BEA is having a hard time dealing with. These areas are likely to recover during the current quarter. However, the automobile area is seeing a slightly more sustained weakness in consumption activity, and the slowing in car sales is more than a transitory feature. In fact, we would note yesterday’s FT article about U.S. banks pulling away from the auto loans market, fearing another subprime bubble. The result is that this area will continue to be a drag on consumer spending and GDP in general, given the auto industry’s multiplier impact on the rest of the economy. Bottom line, the consumer is in moderately good shape (in aggregate), but areas of weakness will continue to drag on growth. The consumer over the last few years has been very stop-start from quarter to quarter, and this pattern we think will continue through this year as well.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.