Data released today showed the Consumer Spending rose for the second-month in-a-row in April. Analysts at Wells Fargo see that after years of hand-wringing about why inflation remained stubbornly low despite a low unemployment rate, the hot labor market is, at last, providing some upward pressure on wages and salaries. They point out that the surge in PCE probably is not going to move the needle for the Federal Reserve
Key Quotes:
“We knew going into today’s report that last month’s increase in personal spending was the biggest sequential increase (+0.9%) in about a decade. What is remarkable here is that not only did that number get revised higher (to +1.1%), but the April increase of 0.3% still came in stronger than expected, even after accounting for a decline in spending on autos.”
“The Fed’s preferred gauge for inflation, the core PCE deflator, quickened slightly to 1.6% on a year-over-year basis. If we take the monthly increase in the PCE deflator out to two decimal places, the increase was 0.25%; that is the biggest increase since October 2017, and the second largest in over a decade. So is inflation getting ready to take off and compel the Fed to change its signaling toward a return to eventual rate increases? Probably not. One month does not a trend make, and this could also be seen as a vindication for Chair Powell’s transitory view on the recent soft patch in inflation.”
“The road ahead is anything but straight and full of obstacles. The increased tariffs on China and the threatened tariffs on Mexico have yet to manifest themselves in steep increases in consumer goods prices. A more immediate impediment could arise if financial markets get jittery again amidst all the trade policy uncertainty.”
Share
