The Bureau of Economic Analysis said that personal spending was flat in April, falling back after growing 0.5 percent in March. In general, we have seen softer purchase levels over the past six months, with the year-over-year pace of personal consumption falling from 4.3 percent in November to 2.8 percent in April. The good news is that this still represents a modest pace of growth. Yet, this softer-than-desired level of spending mirrors consumer anxieties about income and labor market growth, and it corresponds with weaknesses in the larger economy year-to-date. For manufacturers, this has translated into sluggish spending on goods, with durable and nondurable goods spending down 0.7 percent and 0.5 percent, respectively, in April.
On the other hand, personal income growth was more encouraging, up 0.4 percent in April. This represented a rebound after being unchanged in March. Personal income has risen 4.1 percent year-over-year, up from 4.0 percent the month before. Manufacturing wages and salaries edged marginally higher, up from $799.4 billion in March to $799.8 billion in April. This represents continued upward movement in manufacturing wages and salaries, up from $747.6 billion and $776.7 billion on average in 2013 and 2014, respectively.
With income growth exceeding spending, the savings rate increased from 5.2 percent in March to 5.6 percent in April. The savings rate has continued to move higher over the past six months, reflecting the softer spending growth noted above. The savings rate was 4.5 percent in November, for example.
In other news, the personal consumption expenditure (PCE) deflator was unchanged in April, pulling back a little after two straight months of 0.2 percent growth. The slower pace reflected declines in food and energy prices for the month. On a year-over-year basis, the PCE deflator has increased just 0.1 percent, indicating relatively little inflationary pressures and largely the result of falling gasoline prices. Energy costs have declined 20.0 percent year-over-year.
Meanwhile, core inflation – which excludes food and energy prices – was up 0.2 percent in April and 1.2 percent year-over-year. The year-over-year rate of PCE deflator growth was 1.5 percent in November. In general, this data indicates only modest growth in prices, allowing the Federal Reserve to continue to focus on economic growth instead of inflationary worries.
Chad Moutray is the chief economist, National Association of Manufacturers.
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