Friday, June 1, 2007

Personal Income Down, Spending Up

From the BEA:

Personal income decreased $7.1 billion, or 0.1 percent, and disposable personal income (DPI) decreased $9.7 billion, or 0.1 percent, in April, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $52.0 billion, or 0.5 percent. In March, personal income increased $85.9 billion, or 0.8 percent, DPI increased $71.7 billion, or 0.7 percent, and PCE increased $42.4 billion, or 0.4 percent, based on revised estimates.


Personal outlays -- PCE, personal interest payments, and personal current transfer payments increased $55.2 billion in April, compared with an increase of $44.2 billion in March. PCE increased $52.0 billion, compared with an increase of $42.4 billion.

However -- here's the really good news:

Core consumer price inflation increased just 0.1% in April, bringing the year-over-year increase down to 2%, just inside the Federal Reserve's target, the Commerce Department reported Friday.

It's the first time in 14 months that core prices have been inside the Fed's unofficial target zone of 1% to 2%. Core inflation peaked at 2.4% in February; it was 2.1% in March.

The deceleration in core inflation is welcome news at the Fed, but officials have stressed that they still believe inflation could accelerate again despite the recent improvements.

It's interesting that income dropped when employment showed a strong increase. That leads me to conclude we'll see a revision in one of today's two numbers.

The increase in spending will come as welcome news. Consumer spending has been solid for the last year and has helped to ameliorate the effects of a slowing housing market and drop in business investment.

About the PCE -- while it's only one month with the number inside the Fed's comfort zone, the markets should be very happy. In addition, Bernanke should enjoy this because he has been saying for the last year or so that inflation should come down. Right now he looks pretty damn good.

There are some mixed signals in this report that combined with the employment report raise some questions.