U.S. Household Spending Growth Moderates; Core Prices Jump

A shopper wearing a protective mask browses produce inside an Albertsons Cos. Vons grocery store in San Diego, California, U.S. (Photographer: Bing Guan/Bloomberg)

U.S. Household Spending Growth Moderates; Core Prices Jump

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U.S. personal spending rose at a steady, yet moderate pace in April after a stimulus-fueled binge a month earlier.

The reading is consistent with sustained growth in the biggest part of the economy and partly reflects faster inflation.

U.S. Household Spending Growth Moderates; Core Prices Jump

Purchases of goods and services increased 0.5% following an upwardly revised 4.7% jump in March that was the biggest since June, Commerce Department figures showed Friday.

The personal consumption expenditures core price gauge, which excludes food and fuel, increased 0.7%, exceeding expectations and the biggest monthly advance since October 2001.

U.S. Household Spending Growth Moderates; Core Prices Jump

The figures indicate that even as the impact of a third round of stimulus checks wanes, consumers have the wherewithal to continue spending at a solid pace and deliver more support for economic growth.

The outsize March spending gain provided a robust hand-off to growth in the second quarter. Combined with the April increase, the figures help explain why economists currently forecast the economy will accelerate to a 9.4% annualized pace after a 6.4% rate in the first quarter.

Estimates in a Bloomberg survey of economists called for a 0.5% increase in personal spending and a 0.6% pickup in the core PCE price gauge. U.S. stocks rose in early trading, Treasuries were steady and the dollar strengthened.

In a separate report Friday, the U.S. merchandise trade deficit unexpectedly narrowed in April as exports climbed and imports fell from a record high.

The overall PCE index rose 0.6% in April for a second month. Adjusting for the increase in inflation, spending decreased 0.1% in April after an upwardly revised 4.1% increase a month earlier. Goods outlays declined 1.3%, while spending on services rose 0.6%.

Incomes dropped 13.1% after surging 20.9% in March when many Americans received another round of federal stimulus checks.

The April data showed transfer receipts that include stimulus payments and unemployment aid declined from a month earlier. That figure will likely fall further in the coming months as some states phase out federal jobless programs and the last stimulus checks get distributed.

The good news is that wages and salaries increased 1% for a second month. The personal savings rate fell to 14.9%, and disposable incomes, which exclude taxes and are adjusted for inflation declined 15.1% in April.

Inflation Gauge

The core price index jumped 3.1% from April 2020. the largest increase since July 1992. The PCE price index -- which the Federal Reserve officially uses for its inflation target -- rose 3.6% from a year earlier.

The University of Michigan’s final May consumer sentiment figures on Friday showed respondents expect an inflation rate of 4.6% in the coming year, the highest in a decade.

However, the year-over-year inflation metrics are being distorted by so-called base effects. Because of the very weak inflation prints at the start of the pandemic, annual increases in the price metrics appear larger than they would typically.

Concerns about inflation have been hotly debated among politicians, economists and investors in recent months, with some arguing price increases are transitory and others worrying about elevated costs in the longer-term, especially with President Joe Biden’s plans for trillions in government spending in the coming decade.

In a series of speeches this week, some Fed officials pushed back against the threat that a spike in price pressures will prove lasting as the U.S. economy reopens.

“A very important part of inflation dynamics is longer-term inflation expectations and those have been extremely well anchored, implying that if we saw some development pushing inflation up I wouldn’t expect that to get embedded in the ongoing inflation rate,” Fed Governor Lael Brainard said Monday.

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