Incomes Improve, but Spending Flat in April

After remaining flat in March, total personal income in the U.S. rose by 0.4% in April. Gains were posted across the board. Wages and salaries, and proprietors’ income both increased by 0.2%; rental incomes were up by 0.6%; and income from interest and dividends rose by 1.2%. Government transfers (social security, Medicare, Medicaid, unemployment insurance, veterans’ benefits) increased by 0.2%.

Real disposable income (adjusted for taxes and inflation) increased by 0.3% but real personal consumption expenditures were unchanged over the month after rising by 0.4% in March. Spending on durable goods fell by 0.8%, while spending on nondurables edged down by 0.1%. The only spending category to post an increase was services, up by 0.1%. The strong increase in income relative to spending resulted in an increase in the saving rate to 5.6% in April compared with 5.2% in March.

On a year-to-year basis, incomes were up in April compared with March, but overall spending was unchanged:

• Real disposable income in April increased by 3.5% versus 3.2% in March
• Real personal consumption expenditures were up by 2.7%,  the same as in March
• Growth in real spending on goods (2.8%) continues to outpace spending on services (2.6%) although in dollar terms, Americans spend more than two times as much on services as they do goods.

Consumer prices were unchanged over the month in April. A decline in goods prices (-0.2%) was offset by slightly higher prices for services (0.1%). Most of the decline in goods prices were due to lower prices for food (-0.2%) and energy (-1.4%). Excluding food and energy, consumer prices ticked up by 0.1% over the month. Over the year ending in April, consumer price inflation increased by just 0.1%.

The fact that consumers are choosing to spend less is helping to keep price inflation in check. Americans appear to be holding on to the extra bit of income they are earning. The flat reading for personal consumption expenditure does not bode well for consumer spending in the second quarter, which has gotten off to a weak start.

Source:  http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm