Merk Investments: April Personal Income and Spending
Personal expenditures in April rose 0.2% and was up 3.2% on a three month annual basis. Income rose 0.2%, while overall compensation declined -0.1% and wage and salaries fell -0.2% for the month. On a real adjusted basis expenditures were flat for the month and up an anemic 0.4% on a three month annual basis. The PCE deflator increased 3.2% y/y and the core saw a 0.143% m/m and 2.091% y/y increase.
We have been making the case for some time that the major risk to the economy is inflation. Inside these data is a vivid example of just debilitating even a moderate rise in inflation can be on personal expenditures. For the second straight month personal disposable income saw no increase and real expenditures strongly implied that the consumer has capsized. Even the one bright note inside the data-the 0.7% rise in savings- does not shine as bright as it might have given the continuing rise in headline costs.
While many will make the case that the increase in savings represents an important step by the consumer to get her balance sheet back in order, that effort to save more over time will be reduced in real terms by inflation. We are fairly certain that the market will warmly receive the most modest increase in the nominal headline. Yet, the Fed’s preferred inflation measure stands above its implied target range and the very mild inflation data that have been reported in April look to be ripe for upward revisions. Moreover, we are quite certain that the inflation now working its way through the economy will begin to show up in the aggregate data in the coming months. The invisible tax that is inflation will continue to erode the real income and expenditures of consumers at a time when the economy ex fiscal stimulus is stagnant.
Joseph Brusuelas
Merk Investments
Chief Economist/VP Global Strategy
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