Friday, May 27, 2005

Incomes Rising, Inflation Decelerating, Confidence Stable

- Personal Income for April rose .7% versus estimates of a .7% increase and a .5% gain in March.
- Personal Spending for April rose .6% versus estimates of a .8% increase and an upwardly revised .9% gain in March.
- PCE Deflator(YoY) for April rose 2.7% versus a 2.4% increase in March.
- PCE Core(YoY) for April rose 1.6% versus a 1.7% gain in March.
- Final Univ. of Mich. Consumer Confidence for May rose to 86.9 versus estimates of 86.0 and a prior estimate of 85.3.

BOTTOM LINE: US personal spending rose for a third consecutive month, spurred by rising incomes as hiring accelerated. The PCE Core, the Fed’s favorite inflation gauge, rose 1.6%. This is well within their stated optimal range of 1.5-1.8%. Incomes were up 7.0% last month from April 2004, well above the inflation rate.

High gas prices and the incessant talk of a “housing bubble” continue to weigh on sentiment. However, the consumer continues to exhibit confidence by their actions. Record high home sales and better-than-expected retail sales illustrate this. As well, the current conditions index, which reflects whether it’s a good time to buy big-ticket items, actually rose to 104.9 in May from 104.4 in April. Finally, the average price of self-serve gas is falling. The average is now $2.17/gallon versus $2.32 in April. Rising stock prices should also help the next report.

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