April 2018 Personal Consumption Expenditures

Incomes and outlays improved to start the second quarter of this year according to the Bureau of Economic Analysis.  Personal income rose 0.3 percent in April 2018, and spending jumped 0.6 percent.  Disposable personal income (DPI), aka after-tax pay, rose 0.4 percent or $60.9 billion, leading to some decay in the nation’s savings rate. 

All four major categories of income rose.  Wages and salaries accelerated 0.3 percent after growing 0.2 percent in March.  Proprietors made 0.1 percent more, decelerating from a 0.3 percent gain.  Personal income on assets (think dividends and interest) rose 0.3 percent, beating the prior period’s gain of 0.2 percent.  Finally, rental income gained 0.3 percent, down from 0.5 percent at the end of the first quarter. 

Consumers spread the gain in spending across both goods and services. Purchases of goods rose 0.4 percent, nearly erasing the prior period’s loss of 0.5 percent; drilling further down, durable goods purchases were unchanged, but spending on nondurable goods managed an uptick of 0.5 percent, erasing its loss in March.  Consumption of services decelerated to 0.2 percent from 0.3 percent.

In addition to spending and outlay data, this release contains information on inflation.  During the month, the Personal Consumption Expenditures Price Index (PCE price index) rose 0.2 percent matching the gain of the prior two periods.  Year-over-year, it gained 2.0 percent.  If food and energy are stripped from the index, we are left with the Federal Reserve’s preferred price proxy, core-PCE price index.  It also gained 0.2 percent but has risen just 1.8 percent in the past twelve months. 

From the looks of this release, the American economy is in relatively decent shape.  Incomes are rising, and spending is following suit.  However, the added consumption comes at the expense of savings which is currently just 2.8 percent.  Despite the lack of savings, price gains have remained relatively benign.  This should allow the Federal Reserve to proceed cautiously with monetary police increases after tomorrow’s likely rate hike.