WASHINGTON – The April U.S. personal income report was stronger than expected as consumers lowered their pace of saving, setting up second quarter gross domestic product for very strong growth.
April personal income posted a 0.4% gain, personal consumption expenditures posted a massive 1.0% climb (the largest gain since August 2009 as the recession ended), and core PCE prices posted a 0.2% rise for a 1.6% increase over the year.
Real PCE was up 0.6% in its best showing since February, so Q2 is running 3% above seasonally adjusted annual rate in consumption. Real PCE was driven by a 2.2% surge in durables spending, while nondurables posted a 0.7% gain and services posted a 0.4% rise. This was a very strong report after the consumer languished for four months in a row.
Incomes remained decent. Private wages rose $38.6 billion after a $30.7 billion advance in March. During the month, supplements, proprietors' income, rents, transfers, and income receipts all rose.
Interest income appears to have weakened significantly, at a $1.5 billion advance after posting gains of more than $6 billion in the prior three months.
The factor that boosted spending most was less saving for the month, a turnaround from the winter frugality that hurt the economy. Saving totaled $751.1 billion, the lowest amount of the year to data and a 5.4% pace.
Revised data for October to March based on new quarterly wage data show slightly more chained spending in February and less in March, another pattern that set up a strong April rebound.
Overall, the April PCE report suggests Q2 real GDP is off to a good start, but the exact pace of growth may well depend on whether the consumer again retrenches in the coming months.
Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.
