Friday, April 29, 2005

Rising Personal Incomes Spur Gains in Spending

- Personal Income for March rose .5% versus estimates of a .4% increase and a .4% gain in February.
- Personal Spending for March rose .6% versus estimates of a .4% gain and an upwardly revised .7% increase in February.
- The PCE Deflator(YoY) for March rose 2.4% versus estimates of a 2.5% increase and a 2.2% gain in February.
- The PCE Core(YoY) for March rose 1.7% versus estimates of a 1.7% increase and a 1.6% gain in February.
- 1Q Employment Cost Index rose .7% versus estimates of a 1.0% increase and a .7% gain in 4Q.
- Final Univ. of Mich. Consumer Confidence for April fell to 87.7 versus estimates of 88.8 and a prior estimate of 88.7.
- The Chicago Purchasing Manager report for April fell to 65.6 versus estimates of 62.5 and a reading of 69.2 in March.

Bottom Line: Consumers are continuing to spend as if confidence were high. There is very little evidence in today’s economic data of any significant impact from high energy prices. The slight decline in the consumer sentiment reading from the prior estimate was anticipated by the market. Moreover, the current conditions component of the index, which reflects American’s perception of whether it’s a good time to buy big-ticket items, actually exceeded prior estimates and is at 104.4. Disposable incomes, when adjusted for inflation, were up 3.3% last month from a year earlier. Rising incomes are one of the most underappreciated aspects of the current environment. The 1.7% rise in the core PCE deflator, the Fed’s favorite inflation gauge, is within the stated 1.5-1.75% optimal range. This is a big positive considering gas prices reached record highs in April. As well, the benefit costs component of the employment cost index rose only 1.2%, the smallest gain in three years. The better than-expected Chicago Purchasing report is also a positive, considering it reached a 16-year high the prior month. As well, the prices paid component of the index fell to 66.1 from 68.2, which is remarkable.

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