Consumer spending rose less than expected in April as high gasoline prices continued to squeeze household budgets, in government data on Friday which also showed annual inflation at its fastest pace in a year.
Consumer spending increased 0.4 percent, rising for a 10th straight month, after a downwardly revised 0.5 percent gain in March. Incomes rose 0.4 percent last month, in line with expectations.
High food and energy prices in April kept inflation pressures simmering. Compared to April last year, the index was up 2.2 percent, the biggest rise in a year. The core PCE index -- excluding food and energy - increased 1.0 percent in the 12 months through April , the largest gain since September.
DAVID ADER, HEAD OF GOVERNMENT BOND STRATEGY AT CRT CAPITAL GROUP LL, STAMFORD, CONNECTICUT:
These figures are more or less as expected though spending was a bit softer than the consensus call and comes off a 0.1 percent downward revision to March (now at 0.5 percent). We had a hint of the latter with Q1 GDP yesterday, though we didn't know the spending weakness was 'backloaded' a bit. The gain in wages at 0.4 percent was not bad at all.
The bond market edged off a bit though was slightly weaker even in advance. We don't think much of that (was about the data). Perhaps it's a hint we need more dire numbers to do better? Rather chalk (the lower bond prices and higher yields) up to some profit taking.
SIREEN HARAJLI, ECONOMIST, CREDIT AGRICOLE CORPORATE & INVESTMENT BANK, NEW YORK:
The April spending number is exactly in line with our expectations and the downward revisions of the previous months are not surprising due to higher energy prices eroding consumers' spending power.
We do expect a slowdown in consumer spending in May and the rest of the second quarter. But we expect this to be temporary. It will pick up again due to improvements in the labor market in the second half.
On the inflation front, the core PCE measure came within expectations. It's still within the Fed's comfort zone. The energy prices appear transitionary and have not made their way across the economy. The Fed will not be in a rush in hike rates.
PIERRE ELLIS, SENIOR GLOBAL ECONOMIST, DECISION ECONOMICS INC., NEW YORK:
After yesterday's GDP revisions, this shows that the trend in the second quarter is weaker than what people had thought. Spending is flat. This promotes caution about projecting faster growth in the second quarter. Spending is not being supported by income growth.
It's good news that you are not seeing deflation despite the low rate of capacity utilization and high employment. This is reassuring for the dovish members of the Fed, but for the hawks, this reinforces the message you have to be watchful on inflation expectations, which remain stable for now.
VIMOMBI NSHOM, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS:
Income's components (supported more by wages than March had been), especially when added to analysis of prices (PCE up 0.3 percent, up 0.2 percent excluding food and energy), give the implication that Q2 is off to a good start.