Incomes Rise More Than Estimates, Spending as Expected, Core Inflation Decelerates, Chicago PMI Rises Again, Confidence Extraordinarily Depressed

- Personal Income for April rose .2% versus estimates of a .1% gain and an upwardly revised .4% increase in March.

- Personal Spending for April rose .2% versus estimates of a .2% rise and a .4% gain in March.

- The PCE Core for April rose .1% versus estimates of a .1% gain and a .2% rise in March.

- The Chicago Purchasing Manager Index for May rose to 49.1 versus estimates of 48.5 and a reading of 48.3 in April.

- The final reading for the Univ. of Mich. Consumer Confidence reading for May came in at 59.8 versus estimates of 59.5 and a prior estimate of 59.5.

BOTTOM LINE: Personal income for April rose more than economists expected as spending met estimates and a gauge of inflation decelerated, Bloomberg reported. The PCE Core, the Fed’s favorite inflation gauge, rose 2.1% year-over-year, down from 2.5% during February of last year and below the 20-year average of 2.4%. Spending on services, which account for almost 60% of all outlays, increased .1% for the second straight month. The Treasury said last week that it had sent $4.9 billion in tax rebates in the fourth week of the program, bringing the total distributed so far to $45.7 billion. More than $110 billion will eventually be sent. I expect spending and income to accelerate modestly into year-end and inflation to decelerate meaningfully from current levels.

A measure of US business activity accelerated in May. The survey suggests export demand is bringing in new orders and kept manufacturing from slowing as much as prior economic slowdowns. The New Orders component surged to 56.1, the highest since December, versus 53.0 in April. The Order Backlog component jumped to 46.8 from 39.5 the prior month. The Inventories component fell to 42.2 from 51.9 the prior month. The Employment component of the index rose to 41.2 from 35.3 the prior month. The Prices Paid component rose to 87.5 from 82.9 in April. I expect manufacturing to continue to improve through year-end on inventory rebuilding, a falling prices paid component, an end to the American Axle strike, fiscal/monetary stimuli, an end to credit turmoil and strong exports.

Confidence among US consumers fell in May to the lowest level in 28 years, Bloomberg reported. The Expectations component fell to 51.1, the lowest since October 1990. The Present Situation component, which gauges consumer attitudes towards their current financial situation, actually rose to 73.3 from 71.7. I still expect confidence to improve meaningfully through year-end as the job market improves, extreme housing fears subside, energy/food prices fall, election uncertainty ends, inflation decelerates, interest rates remain relatively low, stocks rise, the US dollar strengthens and the effects of fiscal/monetary stimuli take hold.