That followed a 0.5% increase in March. Economists polled by Reuters had forecast consumer spending advancing 0.4%. Spending was boosted by purchases of gasoline and other energy products. Non-durable goods purchases increased 0.9%. There were also increases in purchases of long-lasting goods. Outlays on services rose 0.5%, lifted by demand for household utilities.Prices continued to gradually rise last month.The personal consumption expenditures (PCE) price index excluding the volatile food and energy components increased 0.2% for the third straight month. That left the year-on-year increase in the so-called core PCE price index at 1.8%. The core PCE index is the Fed’s preferred inflation measure.
The US central bank has a 2% inflation target. Economists expect the annual core PCE price index will breach the Fed’s target in the coming months. The Fed increased borrowing costs in March and has forecast at least two more rate hikes for this year. US Treasury yields slipped after the data. US stock index futures were largely unchanged while the dollar was trading lower against a basket of currencies. The moderate inflation also helped support consumer spending last month. When adjusted for inflation, consumer spending rose 0.4% in April after increasing 0.5% in the prior month. That suggests an acceleration in consumer spending after it grew at a 1.0% annualised rate in the first quarter, the slowest pace in nearly five years.
The solid consumer spending added to data on trade and industrial production that have left economists anticipating a pickup in economic growth in the second quarter. Gross domestic product estimates for the April-June period are above a 3.0% rate. The economy grew at a 2.2% pace in the first quarter. Households dipped into their savings to fund purchases last month, with income growth remaining sluggish. Personal income rose 0.3% after a gain of 0.2% in March. Wages increased 0.4%. Savings fell to $419.6bn last month from $445.7bn in March. But with the labour market rapidly tightening, there is hope that wage growth will gain steam.
In a separate report yesterday, the Labour Department said initial claims for state unemployment benefits dropped 13,000 to a seasonally adjusted 221,000 for the week ended May 26. Economists polled by Reuters had forecast claims falling to 228,000 in the latest week. The labour market is viewed as being close to or at full employment. The jobless rate is near a 17-1/2-year low of 3.9%, within striking distance of the Fed’s forecast of 3.8% by the end of this year. Labour market strength is likely to be underscored by May’s employment report, which is scheduled for release on Friday.
According to a Reuters survey of economists, non-farm payrolls probably increased by 188,000 jobs after rising by 164,000 jobs in April.
The Fed’s latest Beige Book report of anecdotal information on business activity collected from contacts nationwide showed labour market conditions remained tight across the country in late April and early May. The Fed said contacts continued to report difficulty filling positions across skill levels. There were notable shortages of truck drivers, sales personnel, carpenters, electricians, painters, and information technology professionals, the US central bank said in its report published on Wednesday.
Sources and photo-credits: Reuters, Gulf Times