April Personal Income and Outlays

Personal income and outlays were mixed in April according to the Bureau of Economic Analysis.  Atlas pays particular attention to this indicator because without a consumer, America has no economy.  Personal income was up 0.3 percent to start the second quarter.  This follows March’s strong growth of 0.5 percent.  Spending did not fare as well in the period, but it was particularly strong as the first quarter came to a close.  Outlays fell 0.1 percent following the upwardly revised growth rate of 1.0 percent (originally 0.9 percent) in March.  Price levels are still within the range considered acceptable by the Federal Reserve.

All of the broad income categories increased in April.  Wages and salaries (by far the largest portion the indicator) were up 0.2 percent in the period, compared to an increase of 0.6 percent in March.  Growth for proprietors’ income matched the prior period’s growth rate of 0.4 percent.  Rental income was higher as was income from interest and dividends.  Removing taxes leaves disposable income (what consumers can actually spend), and it was 0.3 percent higher in the period.

With all of this extra money, consumers must have purchased more…right?  Well, not really.  Less was spent on goods and services than in March.  The positive side to not spending is that it goes into savings.  Americans saved $53.7 billion more in April than in March.

Inflation data continues to make price changes appear moderate.  The price index for personal consumption and expenditures moved 0.2 percent higher in April, the same increase as in March.  Year-over-year, it has moved up by 1.6 percent.  The core price index, which excludes food and energy, was also up 0.2 percent for the month and is 1.4 percent higher than a year ago.

Consumption was strong in March, so the slowdown in April is not alarming, especially because incomes continued to increase.  Inflation pressures are still tracking below the pace that has been explicitly defined by the Federal Reserve as acceptable (greater than 2.0 percent), so the zero interest rate policy is probably going to be with us for an extended period of time even though monetary policies are getting less accommodative.  It’s enough to make us wonder why the saving rate increased.  (by C. Cox)