Consumer Spending

Consumer Spending and Personal Income

May 30, 2017 – Consumer spending, measured by Personal Consumption Expenditures (PCE), makes up approximately two-thirds of the economy and is a direct measure of purchasing activity.  We see where consumers are spending their dollars, whether it be durable and nondurable goods, or on services.  Changes in the personal income level dictate consumer spending.

Personal income rose 0.4% in April, hitting expectations of a 0.4% increase and above March’s increase of 0.2%. Consumer spending increased 0.4% for the month, right in line with estimates. Wages and salaries increased by 0.7%, outweighing any weakness in interest income and proprietor income. The PCE index rose in line with expectations, increasing 0.2% with core PCE (excluding food and energy) also increasing 0.2%.  PCE is up 1.7% over the past year and Core PCE is up 1.5% over the last year as well.

With April being the highest one month change in spending since December, and February and March were also revised up, it is a good indicator the economy is healthy and growing with consumer spending at a high. Consumers in the U.S. spend 95 cents of every dollar they make. Strong spending in the vehicles and durables category compensated for the lower spending in services. We continue to look for spending to rise with a tighter labor market and wages increasing providing a boost to overall economic activity. With core prices up 1.5%, this is the weakest annual gain since December 2015. Even With core prices below the Fed’s preferred measure of inflation of 2%, there are still expectations for a rate hike in June.

Consumer Spending