Personal Income Decelerates, Spending Rises, Inflation Muted, Jobless Claims Rise, Manufacturing Stable, Construction Falls Again

- Personal Income for March rose .3% versus estimates of a .4% gain and a .5% increase in February.

- Personal Spending for March rose .4% versus estimates of a .2% gain and a .1% rise in February.

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

- Initial Jobless Claims for this week rose to 380K versus estimates of 365K and 345K the prior week.

- Continuing Claims rose to 3019K versus estimates of 2950K and 2945K prior.

- ISM Manufacturing for April came in at 48.6 versus estimates of 48.0 and a reading of 48.6 in March.

- Construction Spending for March fell 1.1% versus estimates of a .7% decline and an upwardly revised .4% increase in February.

BOTTOM LINE: US consumer spending rose more than forecast in March, Bloomberg reported. As well, the Fed’s preferred inflation gauge, the PCE core, rose 2.1% year-over-year in March versus the 20-year average of a 2.4% rise and down from 2.5% in February of last year. I expect personal income and spending to improve over the coming months as the job market strengthens, energy/food prices fall, stocks rise, extreme housing fears subside, depressed sentiment improves, credit market turmoil ends and interest rates remain relatively low.

The number of Americans filing first time jobless claims rose from a two-month low this week, Bloomberg reported. The four-week moving average of jobless claims fell to 363,750 versus 370,250 the prior week. The unemployment rate among those eligible for benefits ticked up to 2.3% versus 2.2% the prior week. This is still well below the long-term average of 2.9%. Forty-five states and territories reported a decrease in new claims, while only eight had an increase. The current four-week average of jobless claims of 363,750 is still well below the 410,000+ normally associated with economic contraction. During the last recession, from March 2001 through November 2001, initial jobless claims averaged 415,600 a week. During the contraction from July 1990 to March 1991, first-time claims average 434,000 a week. I expect jobless claims to trend lower from current levels over the coming months.

Manufacturing in the US in April continued to stabilize, Bloomberg reported. The ISM figure was higher than economists had forecast as exports continue to boom at record levels. The ISM Manufacturing Index is still nowhere near levels that normally indicate broad economic contraction. I expect manufacturing to improve further over the coming months as companies gain confidence in the economy, exports continue to boom, consumer spending improves and energy prices fall.

Spending on US construction projects fell more than forecast in March reflecting the largest one-month drop in homebuilding on record, Bloomberg reported. Residential construction fell in the first quarter by the most since 1981. The US economy grew at a .6% annual pace in the first quarter despite homebuilding falling at an annual rate of 27%, which subtracted 1.23 percentage points from economic growth during the quarter. Housing has been subtracting from GDP since the first quarter of 2006. Non-residential construction, including public projects, rose 1.3% in March and is up 12% from year ago levels. New home construction will continue to remain muted over the intermediate-term as builders work down inventories.