Consumer staying power on full display in April
|Summary
So far in 2022, inflation has outpaced income, yet real consumer spending has increased every month this year including another 0.7% in April as we learned in today's personal income and spending report. The source of funds for these outlays are not infinite. For real spending to be sustained, we'll need to see income outpace inflation. That happened in April for the first time since October 2021.
Consumers getting close to the end of the lollipop?
On the day after revised GDP numbers showed an even faster pace of consumer spending in the first quarter, fresh data today for April showed that momentum continued into the second quarter. Personal spending shot up 0.9% in the month and, after adjusting for inflation, real spending still added 0.7%; that comes on the heels of revisions that more than doubled March's real spending gain from 0.2% to 0.5%.
Spending was relatively broad-based with real services outlays growing another 0.5% and real goods spending up 1.0%. Goods spending got a lift from motor vehicles, the category with the largest increase on a real basis. Other durables categories, where frankly we have been expecting some weakness like recreational goods and vehicles and durable household equipment, also saw increased spending in April. Perhaps to some extent we are seeing the delayed arrival of stoves, dishwashers and other household durable goods items that have been in short supply these past few years.
We have a tendency to discount survey data at least when it comes to the consumer. Sentiment has turned sharply lower in recent months with most consumers blaming inflation for their misery. It is hard to square that with recreational services posting the largest gain of any service category in real terms (+1.5%). Bars and restaurants also posted a solid 1.3% gain while grocery store spending was one of only two categories to post a decline in real spending during in April. The other was gas stations, which signals that consumers may be at least trying to combine trips to make fewer trips to the pump.
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