- by New Deal democrat
We finish the month of May with the very important personal income and spending for April, which gives us a thorough look at the consumer. In this case it is particularly complicated by the fact that “Liberation Day” tariffs and various further retaliatory increases were imposed at various times during the month. So I would expect to see lots of evidence of consumers front-running those increases, but which may well have tailed off by the end of the month.
The news on income was particularly good, as it increased nominally by 0.8%. Spending increased 0.2%. Since the deflator increased by 0.1%, real income rose 0.7% and real spending increased 0.1%. Here is real personal income and spending normed to 100 since the onset of the pandemic (as are all other graphs below except for the personal saving rate), showing the former up 13.5%, and the latter up 15.7%:
A closer examination of the release tables indicates that the portion of personal income attributable to wages and salaries increased 0.5%. The big drivers of the outsized increase in income in April were an increase in Social Security benefits, up 2.8%, and also proprietors’ incomes, up 1.3%.
An important forecasting issue is that typically real spending on goods declines before recessions, while real spending on services can increase throughout all but the most severe of them. In April the former declined by -0.2%, while the latter increased 0.3%:
Let’s break down real spending on goods further, into durable vs. non-durable goods. At least one important historical recession model indicates that durable goods purchases turn down before non-durables. I would expect to see front-running by consumers much more evident in the former than the latter. And here there was a major divergence, as real spending on durable goods declined -0.8%, while real spending on non-durables rose 0.1%:
This is particularly hard to interpret, but still, real spending on durable goods was at a level below only March and last December, so my interpretation is that front-running continued in April, but probably abated sharply by the end of the month.
Another important indicator is the personal saving rate. Generally, as expansions continue, consumers become more aggressive with their purchasing, and then more cautious immediately in advance of (and partially the cause of) recessions. In April this increased to 4.9%, the highest level in 11 months, and well above its low of 3.5% in December, indicating that consumers have indeed become more cautious since the end of last year:
It is important to note that such a rate remains below any reading below 1999, and the average between 2000 and 2019 was 5%:
Finally, there are several important coincident indicators used by the NBER in recession dating in this report.
The first is real personal income less government transfer payments. This increased 0.3% in April to another record:
This shows a healthy consumer in the present.
The second is real manufacturing and trade sales, which are calculated with a one month delay. In March they increased 1.4% to a new all-time high as
The surge in real sales - remember, for March, not April - looks very much like further evidence of front-running tariffs, in this case by producers and wholesalers.
Because of the tariff situation, forecasting based on this report is particularly fraught. What we can say is that the consumer portion of the US economy remained in expansion through April, given the increases in almost all of the income and spending series. The only points of caution are the increase in the personal saving rate, and the pulling back on durable goods purchases - but it will be important to see if that trend continued or was amplified in May or not when we get next month’s report.
