Personal Incomes Higher, Spending Lower, Inflation Gauge Decelerates Further, Chicago Area Activity Decelerates, Construction Spending Decelerates

- Personal Income for March rose .7% versus estimates of a .6% increase and an upwardly revised .7% gain in February.
- Personal Spending for March rose .3% versus estimates of a .5% gain and an upwardly revised .7% increase in February.
- The PCE Core for March was unch. versus estimates of a .1% gain and a .3% increase in February.
- Chicago Purchasing Manager for April fell to 52.9 versus estimates of 54.0 and a reading of 61.7 in March.
- Construction Spending for March rose .2% versus estimates of a .1% gain and an upwardly revised 1.5% increase in February.

BOTTOM LINE: Personal spending in the US rose less than forecast, while incomes gained more than estimates and the Fed’s favorite inflation gauge eased in March, Bloomberg reported. The Fed’s recent Beige Book survey said generally positive retail sales were offsetting slower growth in manufacturing in most regions and that most regions reported tight labor market conditions. The unemployment rate is matching a five-year low and wages/salaries gained the most in six years during the first quarter. The Core PCE, the Fed’s favorite inflation gauge decelerated further. The gauge is now rising at a 2.1% year-over-year rate versus the 20-year average of 2.5%. I continue to believe wages will continue growing well above most measures of inflation, thus powering spending and helping sustain economic growth.

A measure of business activity in the Chicago region fell this month from the highest level in almost two years, Bloomberg reported. The report indicates that companies are still increasing production and spending after holding back to work down inventories. The inventories component of the index fell to 43.2 from 48.8 the prior month. The prices paid component rose to 64.9 versus 59.1 in March. However, the employment component rose to 50.5 from 45.0 the prior month. Considering last month saw one of the largest jumps in US history in this index, a large drop was expected. I continue to believe US economic growth will grind slowly higher over the remainder of the year.

Construction spending in the US rose for a second month in March as work on office buildings, hotel and schools increased, Bloomberg said. Private residential construction spending fell 1.0% in March versus a 1.8% gain the prior month. While overall construction spending is holding up, residential construction will continue to mute activity as homebuilders work down inventories.