Personal income grew 0.4% month-on-month (m/m) in April, in line with market expectations. This marked a slight acceleration from the prior month’s gain of 0.3%. Gains were led by compensation to employees, which rose 0.5% in April – up from 0.3% in March.
Subtracting inflation and taxes, real personal disposable income held flat on the month, decelerating from 0.2% in March. In year-over-year terms, real disposable income was up 3.4% in April, an acceleration from 3.3% in March.
Personal consumption rose 0.8% m/m, accelerating from the 0.1% gain in each of the two months’ prior. April’s gain came in above market expectations for a 0.5% reading. Goods spending rose by 1.1% m/m, while services spending rose by 0.7% m/m.
Adjusting for inflation, real spending was up 0.5% from March, coming in above the consensus estimate of 0.3%. Goods spending rose 0.8% m/m, while services were up 0.3%.
The personal consumption expenditure (PCE) price deflator rose 0.4% m/m, and 4.4% on a year-on-year (y/y) basis – slightly above the market consensus forecast (4.3% y/y) and the 4.2% y/y reading in March.
The Fed’s preferred measure of inflation – core PCE – rose 0.4% m/m, which was slightly above the consensus forecast and the March reading (both at 0.3%). Our calculations of “supercore” inflation show that it was up 0.5% – an acceleration from the 0.3% gain in March. On an annual basis, core PCE inflation accelerated to 4.7% y/y from 4.6% y/y the month prior. The measure has held in the 4.6-4.7% range since December 2022.
The personal saving rate was 4.1% in April, which was 0.4%-pts below the downwardly revised 4.5% reading in March.
Real consumer spending grew slightly above market expectations in April, leaving behind the sluggish performance of the two months prior and starting the second quarter off on a decent note. That said, consumer sentiment has continued to trend lower in recent months, while household credit standards have also been tightening (albeit at a moderate clip). These factors are in tune with our expectations for a more moderate spending growth profile this quarter. With April’s data now in the books, our tracking is for consumption growth to slow from 3.8% (annualized) at the start of the year to around 2% this quarter.
The acceleration in core PCE inflation is not what policymakers are hoping to see. While the continued persistence in inflationary pressures alongside ongoing strength in the labor market suggest the Fed should push a bit harder on rates, uncertainties surrounding the regional banking crisis and the ongoing debt ceiling negotiations are clouding the path for monetary policy. We believe that holding rates steady and assessing the impact of past rate hikes remains the most likely path forward for the Fed. That said, the probability of another hike has increased recently, with market odds as of this morning tilting slightly in favor of another 25-basis point rate hike at the Fed’s next meeting in June.