Friday’s key US spending and income data beat across the board, and suggested prices accelerated less than expected in March on an annual basis.
Although somewhat “stale” in the context of Q1’s advance read on GDP, the figures nevertheless gave investors a more granular look at trends in consumption and inflation.
Real personal spending rose 0.2% in March (figure below), much better than the slight decline economists expected. February’s drop was revised to show a small gain.
Headline personal spending rose almost twice as much as anticipated (1.1% versus consensus 0.6%). March’s beats and upward revisions to February’s real and headline PCE prints were set against downwardly-revised January figures.
Personal incomes rose more than expected.
Spending for services outpaced goods, consistent with expectations for a shift away from pandemic psychology. Relatedly, the increase in services spending was led by international travel and food services.
PCE prices remained extremely elevated (obviously) but the MoM prints merely matched estimates. Arguably, that counts as a “win” these days. The YoY readings on both headline and core were a touch below consensus at 6.6% and 5.2%, respectively, versus 6.7% and 5.3% expected.
If you squint, you can see what looks like a peak on the core gauge (figure above). Indeed, February’s MoM core print was revised lower which, when combined with the cooler-than-expected 12-month reading and the (very slight) relief seen in March’s core CPI print, offers a glimmer of hope, faint though it may be.
“While this was embedded in yesterday’s real GDP release, the new information came in the form of the trajectory — which was strong into the close of the quarter,” BMO’s Ian Lyngen said, of the income and spending figures.
All of the above was good news, on balance, but it was overshadowed Friday by a scorching-hot ECI headline which, unfortunately, came packaged with a disastrous read on inflation-adjusted wages.
The good news for the Fed is that domestic wage inflation is more easily affected by its tools than, say, Russian oil supply or Shanghai lockdowns. The bad news for investors is that whatever effect the Fed’s tools have on wages, and other real economy measures, comes after the effect on markets and asset prices.