Consumer Spending Surges

April was definitely the month of the consumer as consumer spending surged 1.0 percent for the largest monthly jump of the economic cycle, since August 2009. The spending gain reflects strength in vehicle sales, which boosted durable spending by an outsized 2.3 percent in the month, and also reflects price effects for gasoline as spending on nondurable goods rose 1.4 percent. Spending on services, which is a bulwark of this report, rose a very solid 0.6 percent in the month.

The income side of today's report is also strong, up 0.4 percent which includes a 0.5 percent rise for wages & salaries. Consumers tapped into their savings for the spending rush as the savings rate fell 5 tenths to what is still a very solid 5.4 percent.

Price data are mixed as the PCE core rate -- which is the Fed's most important gauge -- rose only 0.2 percent with the year-on-year rate decidedly flat at an unchanged 1.6 percent and still, despite the gain for wages, 4 tenths below target. The overall price index shows more life, up 0.3 percent on the month and 3 tenths higher on the year at plus 1.1 percent.

The spending side of this report is an eye catcher and if repeated in May could very well, despite the lack of pressure on core prices, raise the chances for a June FOMC rate hike. Note that unit vehicle sales, to be posted on tomorrow's calendar, will offer the first substantial clues on consumer spending in May.

Recent History Of This Indicator:
Personal spending is expected to rise a very sharp 0.7 percent in April reflecting the big gain for the month's retail sales report. Personal income is also expected to post a meaningful gain, seen at 0.4 percent to match March's gain. But not expected to show much heat is the FOMC's key inflation gauge, the core PCE price index where the consensus is calling for only a 0.2 percent increase. A weak core index could, as far as FOMC policy goes, offset the expected gains in spending and income.