April Consumer Spending Data Point to Decelerating Trend in 2011:Q2

Personal consumption expenditures moved up only 0.1% in April, after a similar increase in March.  The entire gain came from purchases of services (+0.1%), with outlays on durable and non-durables holding steady in April.  Based on April data and conservative projections for May and June, consumer spending is most likely to post a 2.0% annualized increase in the second quarter of 2011 after a 2.2% gain in the first quarter.  In addition to consumer spending, the message from incoming economic reports is that the pace of economic growth is slowing. 

DEC 5/27/2011 Chart 1
The personal saving rate as a percentage of disposable income held steady at 4.9% in April, after maintaining readings above 5.0% in the first two months of 2011 and posting an average of 5.8% in 2010. 

DEC 5/27/2011 Chart 2
Personal income rose 0.4% in April after similar gains in March. The personal consumption expenditure price index rose 0.3%, while the core personal consumption expenditure price index, which excludes food and energy, increased 0.2%.  From a year ago, these indexes have moved up 2.2% and 1.0% respectively.  Although the overall price measure is close to the Fed's threshold of tolerance (around 2.0% is the preferred inflation reading).  The Fed views this as reflecting transitory gains of energy and food prices because a complete pass through of higher energy prices to that of core items has not occurred. 
DEC 5/27/2011 Chart 3

April Pending Home Sales Index Suggests Weakness of Home Sales in the Near Term

The Pending Home Sales Index (PHSI) of April fell 11.6% in April after a 3.5% gain in the prior month.  The PHSI tracks sales of existing homes one-to-two months down the road.  The latest reading bodes poorly for sales of existing homes in May and June. 

DEC 5/27/2011 Chart 4

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