April personal income and spending: the consumer is teetering on the very edge of recession

 

 - by New Deal democrat

This morning’s personal income and spending report for April showed us a consumer who is teetering on the very edge of recession, while the production side of the economy continued its elevated AI-related growth. 

To repeat my usual introduction, personal income and spending are among the most important monthly indicators of all, because they give us a detailed look at consumption by the broad range of American households. And since consumption leads employment, they also give us an idea of what is likely to happen with regard to jobs in the near future.

In April, nominally personal spending rose 0.5%, while personal income was unchanged. Since the PCE deflator increased 0.4%, however, spending was only higher by 0.1%, while real income declined by -0.4%, the third decline in a row and the fifth decline in the past seven months, taking the absolute number down to its lowest since February of last year:

Further, on a YoY% basis, real spending was up 2.1%, the lowest such comparion in over two years except for last December. But worse,  real income actually declined -1.2% YoY:

Importantly, the long term historical graph of real income YoY shows that outside of comparisons with stimulus or tax law change months, real income has only been negative YoY during or in the immediate aftermath of recessions:

Once we exclude government transfers — one of the important coincident metrics used by the NBER to date recessions — real personal income also declined -0.4% to its lowest level since late 2024, and -1.2% below its peak level last September:

Outside of brief declines of no longer than four months, and during 2022, a -1% or greater decline from a peak has only happened leading up to or during recessions (note log scale for better clarity):

And 2022 can be distinguished by a gale force economic tailwind of close to a -10% decline in most commodities as the COVID bottlenecks unraveled, which needless to say is nowhere to be found at present. 

Another important component of the data is spending on goods, and in particular durable goods, which is a leading indicator. Historically, the pattern has been that real spending on goods (gold in the graph below) turns down in advance of recessions, and in particular spending on durable goods (red), which tends to turn down first. Real spending on services (blue) has tended to rise even during all but the most prolonged or deep recessions. 

These have already been flashing red warning signals for a number of months. In April, real spending on services rose 0.2%, but real spending on goods declined -0.1%, and on durable goods declined -0.6%. The below graph shows the post-pandemic record, normed to 100 as of March of last year:

On a YoY basis real spending on goods was up 1.2% but real spending on durable goods was down -0.1%. The trend has been weakening for over a year, and for the past few months has been the lowest since 2022:

A longer term graph of the same shows that such weak numbers only happened during the Great Recession and also in early 2019, which was close to a recession as well:

The Iran war showed up in PCE inflation, as the deflator increased 0.4%, causing YoY PCE inflation to rise to 3.8%, the highest since May of 2023:

Meanwhile, the personal saving rate - i.e., the portion of income left over after spending, declined a sharp -0.6% to 2.6%, the lowest such rate since June 2022, which has only been exceeded during the 2005-07 period and during 2022:

This is the second month in a row in which it appears that, in order to deal with the spike in gas prices, consumes got further out over their skis, leaving them vulnerable to any further shock. Typically sharp retrenching by consumers as demonstrated by an increase in the saving rate is something that happens just before the start of a recession.

Finally, the updating of the PCE deflator also allows for an update to another important coincident indicator used by the NBER to consider whether the economy is in recession or not; namely, real manufacturing and trade sales, which is delayed by one additional month. These declined -0.3% in March from their all-time high in February:

This is of a piece with the recent rebound in manufacturing data we have seen in things like durable and capital goods orders as well as manufacturing production, which in turn is tied to AI data center construction.

To sum up, April’s personal income and spending report amplified two very big trends which have been apparent in this data since late last year. First, the average consumer is only keeping their proverbial head above water by digging into their credit limits, as their real income has declined by recessionary margins. This is also manifesting by a decline in spending on goods, and especially durable goods. 

There are only two things keeping this from having brought about a recession already. The first is that consumers have not yet started to retrench by increasing savings. Second, the AI data center construction boom (or bubble), likely also aided by oil company profits, is driving an increase in manufacturing production.

By such a narrow thread is the entire economy hanging.

Jobless claims continue to forecast economic growth and a tight labor market

 

 - by New Deal democrat

This morning there is a slew of economic data, including personal indome and spending, jobless claims, durable and capital goods orders, revisions to GDP, and new home sales. Since tomorrow there is very little data, I am going to report on the first two tdoay, and save the rest for tomorrow.

Let me start with my usual weekly report on jobless claims. As per usual, I do this because historically they have been a very good short leading indicator.

Last week initial claims rose 5,000 to 215,000, and the four week moving average rose 6,250 to 209,000. Both of these continue to be excellent numbers from the historical perspective. Continuing claims rose 15,000 to 1.786 million:

As usual, the YoY% changes are more important for forecasting purposes, and all of these were negative comparisons (which means very positive for the economy). Initial claims were down -8.9%, the four week average down -8.6%, and continuing claims down -6.8%:

Based on long term historical data, these portend continuing economic growth in the next few months. There is an important caveat, which is that the historically low jobless claims numbers are consistent with historically low working age population growth, fueled in large part by a virtual halt to immigration. In particular, it is probably not a coincidence that the YoY negative comparisons began last July and have intensified since. While Los Illegales cannot make unemployment claims, legal immigrants can but may be afraid of ICE targeting them anyway (because ICE has certainly been detaining and even deporting legal immigrants). Additionally, if an employer’s undocumented workforce has dried up, then it will take a lot more slack in the jobs queue before the employer begins to lay off remaining workers.

Finally, since jobless claims lead the unemployment rate, let’s do our update of that comparison:

The big slide in the monthly averages of both initial and continuing jobless claims forecast a similar decline in the unemployment rate in the next few months, not just to 4.0%, but possibly even lower.

The bottom line is that the employment sector of the economy (if not necessarily the income earned) is doing quite well.

Why no US recession? Free spending by the upper class

 

 - by New Deal democrat

There is a slew of economic data being released tomorrow, the most important of which will be personal income and spending, so I will likely defer some reporting on the other data until Friday.

But in the meantime, there’s no significant data today. So let me take this opportunity to show in the simplest terms why all of the economic chaos coming out of Washington, including Tariff-palooza, mass deportations, the Big Billionaire Bust-out Bill, and the gas price spike and all of the other disruptions arising from the war with Iran have not put the US economy into recession as of now.

First, here are stock prices for the last year:

One year ago, the S&P 500 was about 5900. Yesterday it closed at 7519.12, about a 27% increase in that one year period. That is an absolutely booming (or bubbly!) stock market, driven mainly by AI-related companies.

It is estimated that the top 10% of the wealth distribution owns about 90% of all stocks. The top 10% by income own about 70%.

 

By contrast, both personal income and average nonsupervisory earnings have grown about 3.7% YoY as of their respective latest readings:

This vs. the latest YoY growth of 3.8% in the CPI.

So while the lower parts of the income distribution are struggling, the uppermost elements are doing just fine, thank you.

And they are spending.

Here is the last three years’ of YoY weekly retail spending by Redbook. As of this week it showed a 9% YoY increase:

Not only has spending been positive YoY, but there has been a marked acceleration in that YoY spending beginning last autumn and accelerating even more this spring.

One of the very first things we could expect consumers to cut is the cost of dining out. That hasn’t been happening either:

Typically in 2024 and 2025, YoY growth in dining reservations was about 6%-8%. In the past 12 months it has accelerated to over 10% gains YoY.

So why isn’t the US in recession? Because gains by the uppermost in the income and wealth distribution have enabled such free spending that it has more than overbalanced the struggles of most of the rest.

Repeat home sales continue to show disinflation; shelter CPI likely to continue to be a non-factor

 

 - by New Deal democrat

For the last number of months, I have been putting front and center that housing prices have ceased being an engine of inflation. In fact, changes in repeat home sales prices as measured by both the Case-Shiller National Index and the FHFA Purchase Only Index are at levels that with only one exception have been at levels typically only seen during or after recessions.

This month’s report for March continued that trend.

The seasonally adjusted Case-Shiller National index (blue in the graphs below) actually declined -0.2% for the three month period ending in March, while the FHFA index (red) rose 0.1%:

Just as important if not moreso is that the YoY comparisons of at least one of the two national indexes continued to show further disinflation. The Case Shiller national index increased only 0.7% YoY, tied for the lowest since the Great Recession’s housing bust except for April through June 2023. The FHFA Index again rounded to 1.7%, as it has for the last two months, but actually was slightly lower, becoming the lowest such reading since 2012:

As per usual, since housing prices lead the CPI’s shelter component (purple in the graph below) by roughly 12-18 months, let’s compare the YoY trends (Note: house price indexes /2.5 for scale) going all the way back to 1990:

In 1992, with house price increases generally stable in the roughly 0.5%-1.0% YoY range, shelter inflation increased about 3.0%. But in the past year the trend in house prices has been continued slow disinflation, as it was in 1991. Thus I continue to believe that the repeat sales indexes provide solid evidence that we can expect shelter inflation in the CPI to continue to decelerate throughout this year, with the shelter component ending this year at close to a 2.0% YoY increase.

In April, the shelter component of the CPI had an anomalous monthly jump of 0.6%, the biggest such increase since September 2023, which caused the YoY growth to increase to 3.3%, but I expect the downward drumbeat of disinflation in the housing aspect of consumer prices to resume in the next month or two.

Memorial Day 2026

 

 - by New Deal democrat

Memorial Day originated as the day to remember those thousands who gave their lives to preserve the Union in the Cicil War, by decorating their graves. It is that most somber of national observances, in which we remember all of those who gave their lives to protect government of the People, by the People, and for the People; under the Rule of Law as previously agreed by those people.

From Lincoln’s Gettysburg Address:

“… [O]ur fathers brought forth on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal.

“Now we are engaged in a great civil war, testing whether that nation, or any nation so conceived and so dedicated, can long endure…. We have come to dedicate … a final resting place for those who [ ] gave their lives that that nation might live. It is altogether fitting and proper that we should do this.

“But, in a larger sense, we can not dedicate-we can not consecrate-we can not hallow-this ground. The brave men, living and dead, who struggled here, have consecrated it, far above our poor power to add or detract. The world … can never forget what they did here. It is for us the living to be here dedicated to the great task remaining before us-that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion-that we here highly resolve that these dead shall not have died in vain-… that government of the people, by the people, for the people shall not perish from the earth.” 

Here is one such place of commemoration:

Normandy American Cemetery

Weekly Indicators for May 18 - 22 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

Interest rates, along with gas prices, continue to be elevated, but consumers are continuing to spend their way right on through the adversity - at least, so far.

As usual, clicking over and reading will bring you up to the virtual moment as to the economy, and reward me with a penny or two for my efforts.