

World View & Market Commentary.
Forest first; Trees second.
Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.
Highlights
Income growth continued to support the consumer sector in April. Spending was moderately strong but largely due to higher prices. Notably, inflation is still on the warm side. As the report's biggest positive, personal income in April posted a 0.4 percent gain equaling the pace in March and matching analysts' forecast. Importantly, the key wages & salaries component increased 0.4 percent, following a boost of 0.3 percent in March.
Spending looks healthy at face value but inflation was the underlying factor for the most part. Personal consumption expenditures expanded at a 0.4 percent rise in April after increasing 0.5 percent the month before. The consensus expected a 0.4 percent gain. Providing upward lift was another sizeable increase in gasoline sales. But real spending has been soft recently, rising 0.1 percent in April and in March after a 0.4 percent jump in February.
Strength in nominal PCEs was largely in nondurables, up 0.8 percent after a 0.9 percent jump in March. Durables rebounded 0.3 percent, following a 0.7 percent drop the month before. Services spending slowed to a 0.2 percent increase after a 0.6 percent jump in March.
Energy is keeping overall inflation on the high side. The headline PCE price index posted a 0.3 percent gain, down marginally from 0.4 percent in March but still strong. However, the core rate firmed to 0.2 percent from 0.1 percent in March.
On a year-ago basis, headline PCE inflation worsened to 2.2 percent from 1.8 percent in March. Core PCE price inflation edged up to 1.0 percent on a year-ago basis from 0.9 percent in March. Core inflation has been on an uptrend since the recent year-ago low of 0.7 percent in December 2010.
Year on year, personal income growth for April posted at 4.4 percent, compared to 4.8 percent the prior month. PCEs growth rose a year-ago 4.8 percent, up from 4.4 percent the prior month.
The good news is that income growth remains moderately strong. The bad news is that inflation has eaten into those earnings and has restrained real spending. The slowing in real spending may be transitory (a recently favorite word among Fed officials) but softer inflation and healthier income growth are needed.
U.S. Consumer Spending Climbed Less Than Forecast in April
May 27 (Bloomberg) -- Consumer spending in the U.S. climbed less than forecast in April as food and fuel prices rose, a sign that faster income gains are necessary to boost the biggest part of the economy.
Purchases rose 0.4 percent after a revised 0.5 percent gain the prior month that was smaller than previously estimated, Commerce Department figures showed today in Washington. The increase compared with the 0.5 percent median estimate of economists surveyed by Bloomberg News. Incomes climbed 0.4 percent, matching the median forecast.
Retailers like Wal-Mart Stores Inc. are feeling the pinch as higher grocery and energy bills force households to cut back on less essential items. Federal Reserve Chairman Ben S. Bernanke is among central bankers who predict the acceleration in commodity prices will be temporary, providing some relief for Americans whose spending accounts for 70 percent of the economy.
“When you account for higher food and energy prices there’s barely anything left for consumers” to buy, said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who accurately forecast the April gain in spending. “We need to see job growth pick up and we need to see commodity prices continue to cool.”
Highlights
With no special factors to blame, initial jobless claims rose 10,000 in the May 21 week to a 424,000 level that's 20,000 higher than expected. Revision to the May 14 week is also a negative, up 5,000 to 414,000. The Labor Department isn't citing any weather or auto-related factors for the results. The four-week average of 438,500 is nearly 30,000 higher than a month ago in a comparison that points to trouble for the May employment report. Even the four-week average for continuing claims is higher, at 3.742 million in data for the May 14 week vs 3.702 million in mid April. Stock futures are moving off early gains following this report and following a softer-than-expected revision to first-quarter GDP.
Highlights
The economy did not get the hoped for upgrade for the start of the year. The Commerce Department's second estimate for quarter GDP growth was unrevised at up 1.8 percent annualized and came in lower than the consensus forecast for 2.1 percent. The first quarter remains notably softer than the 3.1 percent pace in the fourth quarter.
Unfortunately, demand numbers were nudged down and inventory investment bumped up. Final sales of domestic product were revised to an annualized 0.6 percent from the initial estimate of 0.8 percent. Final sales to domestic purchasers were revised to 0.7 percent from the original estimate of 0.9 percent annualized. The downward revision to final sales was mainly in personal spending, now at up 2.2 percent instead of the initial 2.7 percent for the first quarter.
For overall relative strength (not merely the direction of revisions), PCEs growth remained moderately healthy. Also, business investment in equipment & software is strong. Inventory investment is positive but levels are still low. Weakness remained in government purchases, nonresidential structures, and net exports.
Economy-wide inflation was unrevised, with the GDP price index posting at 1.9 percent. The median forecast was for 1.9 percent.
Even though the headline number was disappointing, odds are that growth will not slow further in coming quarters. Momentum is still favorable for consumer spending, equipment investment, exports, and inventories.
Highlights
The volume of mortgage applications for home purchases rose 1.5 percent in the May 20 week, partially reversing the prior week's 3.2 percent decline. Purchase applications jumped 6.7 percent in the first week of May, a month that so far looks to show a gain compared with April in what would be good news for the housing sector. Applications for refinancing rose 1.5 percent reflecting favorable mortgage rates which however rose in the week, up nine basis points for 30-year loans to 4.69 percent.
Highlights
The Chicago Fed national activity index fell to minus 0.45 in April for the lowest reading since August and down from March's revised plus 0.32. April shows a month-to-month decline in manufacturing-related indicators which the report attributes in part to Japanese-related shortages in the auto sector. The three-month moving average is minus 0.12 for the first negative reading since December. The average indicates that economic activity was below trend in the month though it also indicates that inflationary pressures were subdued.
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