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Brian Wesbury
Chief Economist
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Bob Stein
Deputy Chief Economist
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 | Personal income increased 0.4% in April |
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Implications: Consumer spending keeps growing at a healthy clip, although inflation is now taking a larger bite. Nominal consumer spending is up 4.8% versus a year ago, but up at an even faster 6.8% annual rate in the past three months. The acceleration in spending corresponds to acceleration in private-sector wages and salaries, which are up 4.1% versus a year ago but at a 5.6% annual rate in the past three months. The negative is that inflation has been accelerating as well. Consumption prices are up a moderate 2.2% versus a year ago, but are up at a 3.6% annual rate in the past six months and a 4.6% annual rate in the past three months. Although "core" consumption inflation (which excludes food and energy) is at a lower level, it is also accelerating, up 1% versus a year ago but up at a 1.9% annual rate in the past three months. Given that commodity prices are off their recent highs, some of the headline inflation will temporarily abate over the next couple of months, but core inflation should continue to worsen. This is an economic problem that calls out for a tighter monetary policy, not the continuation of an overly loose policy. Longer term, "real" (inflation-adjusted) consumer spending should strengthen. Consumer balance sheets are healthier and their financial obligations (monthly payments like mortgages, rent, car loans/leases, as well as other debt service), are the smallest share of disposable income since 1995.
Click here for the entire report.
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These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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