Spending Data

April 30th, 2015 9:43 am | by John Jansen |

Via Mullan Mulraine at TDSecurities:

The US data tone was somewhat mixed, with the rebound in personal consumption providing some evidence that consumer spending ended the quarter on stronger footing after the weather-related swoon lower during the first two months of the year. The inflation picture, however, with subdued performance in core inflation confirming that the inflation backdrop remains quite benign. Treasuries are mixed, as the more tepid inflationary picture has resulted in the curve bear-flattening on the under-performance of the belly.

The pace of consumer spending activity rebounded in March, posting a relatively healthy 0.4% m/m advance after essentially stalling during the first two months of the quarter. The pick-up in spending, however, fell short of the market expectation for a slightly more respectable 0.5% m/m gain. In real terms, however, the pace of spending rebounded to 0.3% m/m marking the strongest gain in this indicator since October. This effectively points to some positive momentum in household spending going into Q2, though it fell somewhat short of the strong rebound that would we had anticipated. The boost in spending comes at a time when income growth stalled – which was the weakest showing in this indicator since December 2013 – as household drew down on their savings war chest.

On the inflation front, core PCE inflation fell short of the market expectation, rising at a relatively weak 0.1% m/m pace. The market consensus was for a slightly firmer 0.2% m/m advance. On a year ago basis, the core inflation rate remained unchanged at 1.3% y/y following the downwardly revised estimate the previous month (down from +1.4% y/y to +1.3% y/y). The quarterly ECI report, however, does point to some further acceleration in inflation momentum with the 0.7% q/q advance, up from +0.5% q/q in Q4 (though this was downwardly revised from +0.6% q/q) reflecting that the steady rise in labor costs is being sustained. Despite this, the underlying inflation picture remains benign.

The underlying message from the PCE report is that US consumers are back in the game, and the pick-up in personal consumption (in both real and nominal terms) is encouraging as it means that household spending ended the quarter on very strong footing in Q1, which will provide a favorable hand-off to the next quarter. However, this is unlikely to move the needle at the Fed in favor of a mid-year hike, unless we see a more meaningful pick-up in real spending activity in over the next two months.

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