A report released by the Commerce Department shows that in the month of April, personal income increased by 0.3%. The figure is in line with economist estimates and reflects Americans’ pretax earnings from wages, salaries, investments and other U.S. sources.
Meanwhile, the report said consumer spending jumped 0.6% over the previous month. The increase is the biggest gain in five months and more than economists expected. The spending data, which accounts for more than two-thirds of U.S. economic activity and measures household spending on everything from health care to magazines, is a good sign of economic growth in the second quarter after a sluggish first quarter.
GASOLINE AND HOUSEHOLD UTILITIES BOOST SPENDING
Spending was boosted by purchases of gasoline and other energy products. Nondurable goods purchases increased 0.9% while outlays on services rose 0.5%, elevated by demand for household utilities.
The personal-consumption-expenditures (PCE) price index, a benchmark used by the Federal Reserve to measure inflation, climbed to a seasonally adjusted 0.2% for the third month in a row, leaving the year-over-year increase in the core PCE price index at 1.8 percent. Economists expect the index will break through the Fed’s target in the coming few months and predict two or three more increases this year of 0.25% in the Central Bank’s short-term interest rate which is currently at 1.5% to 1.75%.
CONSUMERS ARE MAKING MORE, SPENDING MORE AND SAVING LESS
Consumers are earning more and spending more, but they are saving less. With spending up by more than income, personal saving as a percentage of disposable income fell to 2.8% in April from 3% March. In dollars, that equates to personal savings falling from $446 billion in March to $420 billion in April.
Most indicators look to be pointing to a growing economy where momentum is rebuilding. Rising incomes, additional dollars from last year’s tax cut and low unemployment helped propel spending on both goods and services in April, which suggests a more robust second quarter is on the horizon.