WASHINGTON: The personal incomes of American consumers have increased 0.4 per cent in April, said the US Commerce Department.
According to the report, the aggregate personal income rose by $59.4 billion in the month, but spending fell by $2.7 billion. Households instead saved more of what they took in, adding a net $51.5 billion to savings over March.
The personal saving rate – saving as a percentage of disposable personal income – jumped to 5.6 percent from 5.2 percent.
Meanwhile a key measure of inflation, the personal consumption expenditures (PCE) price index, rose less than 0.1 percent in the month and was up just 1.2 percent year-on-year, in a fresh sign of weak inflation.
Sophia Kearney-Lederman of FTN Financial said the data undermines the narrative that the economic contraction of the first quarter was mainly due to weather and port issues that were left behind in the current quarter.
Instead, a key issue is proving to be consumer prudence, despite the savings households are enjoying from sharply lower gasoline prices.
“With consumer sentiment wavering at the same time income growth is constrained, consumers could keep saving in the second quarter, keeping both Q2 spending and GDP growth below current forecasts of 3.2 percent and 2.7 percent, respectively,” she said.
Combined with the weak inflation data, she said, the Federal Reserve has less support for moving ahead with a key interest rate hike that had been expected at mid-year.
Instead, she said, the data “will make it more challenging for the Fed to persuade investors of its optimistic forecasts of imminent growth right around the corner.”
