Pressure drop: Slight cooling in real spending as price ascent slows
Personal income and spending grew in April, but after adjusting for inflation, the income gain was muted and real spending fell 0.1%. Core inflation at **2.7%** may not show meaningful progress on the fight against inflation, but it signals a cooling trend, a welcome reversal of Q1 price data.
**Miss a beat, you lose the rhythm**
Personal income grew 0.3% in April and spending grew 0.2%, but after adjusting for inflation, the income gain was muted and real spending fell 0.1%. It may not be a huge drop, but it marks the second monthly decline in the past four months. Are consumers losing their rhythm?
Yesterday’s GDP report revised the first-quarter real GDP growth rate down to **1.3%** from 1.6% previously, with a sharply lower profile for consumer goods spending accounting for most of the adjustment. The new data revealed today how things are shaping up in the current quarter with the first look at monthly numbers for April.
Income gains were broadly based with no glaring standouts in terms of the drivers of growth in April. Looking at the details of the spending on a real basis, the standout gainer was a **1.4%** jump in spending on autos. Yet real goods spending as a whole fell **0.4%** in April, led lower by declines in spending on gasoline and recreational goods. Since this is real spending, the sharp decline in gasoline spending suggests less driving and less going out. That is key to understanding the composition of services spending.
Real services spending did eke out a gain, if only a modest one: **+0.1%**. The drivers of services spending in April were non-discretionary categories such as housing and healthcare (the two largest categories of spending) as well as financial services. The more discretionary categories saw cutbacks in spending, with transportation services, recreational services as well as food services & accommodations all lower in April.
**Conclusion:**
In conclusion, the slight cooling in real spending as price ascent slows indicates a shift in consumer behavior and economic trends. With income gains being muted and real spending showing a decline, the focus now shifts to understanding the drivers behind these changes and their impact on the overall economy. It will be interesting to monitor how these trends develop in the coming months and their implications for the broader economic landscape.