Link Securities | The Commerce Department released on Friday that US personal income rose 0.8% in April from March, significantly more than the 0.4% increase analysts had expected. This increase was mainly due to a 2.8% rise in personal current transfer income. In addition, compensation of employees rose by 0.5 per cent. Rental income was unchanged, while income from personal rents on assets fell by 0.4 per cent.
On the other hand, personal spending rose by 0.2% in April relative to March, somewhat below the 0.4% expected by analysts. In the month the increase in spending prior to the import tariff hikes started to moderate. Spending on services increased by 0.4% due to higher spending on housing and utilities, medical care, food services and accommodation, although these expenditures were partially offset by lower spending on non-profit institutions, financial services and insurance. Expenditure on goods declined by 0.1%, reflecting lower demand for durable goods such as motor vehicles and parts, clothing and footwear, and recreational goods and vehicles.
In turn, the personal consumption price index, the PCE, rose by 0.1% in April from March, somewhat below the 0.2% expected by the analysts’ consensus. In April goods prices rose by 0.1%, as did services prices. On a year-on-year basis, the PCE rose by 2.1% in April (2.3% in March), slightly less than the 2.2% expected by analysts. April’s rate is the lowest for the index in seven months.
The underlying PCE, which excludes unprocessed food and energy prices, also rose by 0.1% in April compared with March, while at a year-on-year rate it rose by 2.5% (2.7% in March), its smallest rise since March 2021. In this case, analysts expected a monthly increase of 0.1% and a year-on-year increase of 2.5%, in both cases similar to the actual readings.
Assessment: very positive readings, somewhat surprising, which we believe will please the Federal Reserve (Fed). Although core inflation is still some way off the 2.0% target, it is getting closer and closer to it. However, we understand that the Fed will wait to see the real impact that President Trump’s new tariff policy has on prices and economic growth.
