US personal income and spending growth outpace forecasts in April

Income growth and spending in the US picked up by more than expected last month pointing to a pick up in consumption over the second quarter, with prices set to remain not far from the Federal Reserve's definition of price stability.

According to the Department of Commerce, in nominal terms, personal incomes grew at a month-on-month clip of 0.5% in April, beating forecasts for an increase of 0.3%.

Personal consumption expenditures also rose more quickly than anticipated, jumping by 0.3% (consensus: 0.2%), and the previous month's rise was marked up by two tenths of a percentage point to reveal a jump of 1.1%.

Adjusting for price increases however, spending was flat versus the month before.

Price pressures on the other hand were roughly as expected, with the key PCE price deflator printing at up by 1.5% versus a year ago and by 1.6% at the 'core' level.

However, the reading for the headline year-on-year rate for the PCE price index for the month of March was revised higher, from 1.4% to 1.5%.

Commenting on the behaviour of prices, Pantheon Macroeconomics's chief economist, Ian Shepherdson, noted how a 0.3% month-on-month rise in the core PCE price index was avoided only narrowly, due to rounding, although approximately a third of April's 0.247% increase was on the back of a 4.1% increase in portfolio management charges which tend to lag movements in the stock market.

Nonetheless, his forecast was for the trimmed mean version of the core PCE price index, which Fed chair Jerome Powell cited twice during his 1 May conference, to remain near 2%.

For real consumption, Shepherdson was looking for it to pick up to a pace of 3.0% in the second quarter following the 1.3% rise observed in the first three months of 2019, thanks to spending on both non-automobile products as well as for cars, although falling share prices might dent consumer confidence and hence the former further down the line.

"Auto industry observers reckon sales rebounded somewhat in May, and we expect steady gains in non-auto spending, given solid growth in real incomes and sky-high consumer confidence. The latter will reverse in Q3, though, if the stock market keeps falling in the face of the escalating trade war."