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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 March |
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| Posted Under: Data Watch • PIC |
Implications: Despite what you may hear, the American consumer keeps buying. In fact, spending has accelerated of late. Personal consumption is up 4% from a year ago, but up at a 6.8% annual rate in the past three months. Some analysts may question how this can keep going. Spending is up faster than income in the past year. What they're missing is that households' financial obligations – recurring payments like mortgages, rent, car loans/leases, as well as other debt service – are now the smallest share of income since 1984. As these obligations diminish consumers can lift spending faster than income. Meanwhile, government transfers have become only a minor factor behind consumption growth. Private sector wages and salaries are up 5.3% in the past year, while transfer payments are up only 0.9%. Continued job gains and wage increases should support further gains in consumer spending from here. On the inflation front, overall consumption prices are up 2.1% in the past year, slightly above the Fed's supposed target of 2%. The Fed's favorite gauge of inflation – core PCE, which excludes food and energy – is up 2% from a year ago, the first time at 2% or more since late 2008. Given healthy spending patterns and inflation already at their target, the Federal Reserve has no justification for another round of quantitative easing. In other news this morning, the Chicago PMI, a measure of manufacturing activity in that region, slipped to a 56.2 in April from 62.2 in March, mirroring the weakness seen in the Empire State index and Philly Fed index. However, in all three surveys the sub-index for employment increased in April.
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