There were a few important reports on the U.S. economy released this morning. First, data from the Department of Commerce showed that personal income for Americans rose by 0.2 percent in March, slightly worse than expected and the February gain was revised lower. Similarly, consumer spending, which accounts for roughly two-thirds of the economy, was unchanged in March and the prior month’s figure was revised lower. Most of this headline weakness was due to a big slowdown in inflation in March. In fact, the two main personal consumption expenditures (PCE) price indices included in this monthly report, the Federal Reserve’s preferred measures of consumer price changes, fell in March. That was the first time that both PCE inflation gauges have declined since December 2008, and the year-over-year reading on headline PCE even fell from 2.1 percent to 1.8 percent in March, back below policymakers’ 2.0 percent “target.” As a result, inflation-adjusted measures of annual growth in both Americans’ income and personal spending improved in March, particularly in the high-end arena. Another highlight from the report is that the last time the unemployment rate was as low as it is today (4.5 percent), the personal saving rate was 3.2 percent (2007). Currently it is 5.9 percent.
Elsewhere, the manufacturing purchasing managers' index (PMI) from IHS Markit ended April at 52.8, the third monthly decline in a row following the nearly 2-year high hit in January. Under the hood, measures of production and new business continued to expand in April, albeit at a slower rate. Surveyed managers attributed this recent weakness to “more cautious spending among domestic clients.” Employment growth rebounded from March’s 7-month low as backlogs of work rose at the fastest pace since October 2015. Forward-looking (six months ahead) indicators among surveyed managers broadly improved in April. Less encouraging was the Institute for Supply Management's (ISM's) manufacturing index, also released this morning, which slid to 54.8 in April. That was significantly worse than anticipated and the weakest headline reading since December. Measures of new orders and employment deteriorated in April but comments from surveyed managers were generally positive. Overall, both manufacturing indices remain near cycle highs but the recent weakness shows that soft (survey) data continue to come back in line with hard data, thus providing more evidence that the post-election spike in business sentiment might have been a bit overdone.
Sources: Econoday, Bloomberg, ZH, Twitter, IHS Markit, ISM, U.S. DoC, FRBSLPost author: Charles Couch