The U.S. income report revealed big, but expected, April gains of 0.4% for both income and consumption thanks to a skewing of Q1 spending toward March that raised the trajectory into Q2. There was a 0.2% “real” April consumption rise after what is now a 0.5% (was 0.2%) March surge that reflected a two-month weather-lift. There were 0.2% gains for both headline and core personal consumption expenditure (PCE) chain prices, on the high end of expectations, thanks to a firm April core gain relative to the consumer price index (CPI). There were the Q1 consumption boosts from Friday’s gross domestic product (GDP) report with massive downward Q4 and Q1 revisions for the level of income and tax payments.
Analysts with Action Economics left their Q2 GDP estimate at 2.7%, following the 1.2% Q1 gain, but with real Q2 consumption growth of 3.7% (was 3.5%), after a 0.6% Q1 clip. The savings rate sat at 5.3% in April after huge downward Q4-Q1 revisions that left rates of the same 5.3% in March (was 5.9%) and February (was 5.7%). There was a 5.2% (was 5.7%) Q1 average, after prior averages of 4.9% (was 5.5%) in Q4 and 5.9% in both Q2 and Q3. There is now a sharp Q4-Q1 savings rate drop from the lofty 6.1% average in Q1 of 2016 and the 3-year high of 6.2% in March of that year.