April: Rough Month For Spending & Income

Consumer spending and disposable personal income declined last month, the US Bureau of Economic Analysis reports. That’s a worrisome sign because the annual rate of growth for both indicators has been trending lower for two years. The margin of comfort, in other words, is wearing thin, and today's report doesn't offer much in the way of encouraging signals for expecting a bullish change in the weather.

On a monthly basis the numbers are sobering. Indeed, red ink in April prevailed for both personal consumption expenditures (PCE) and disposable personal income (DPI) for the first time since 2009. You can't tell much from one set of monthly numbers, but historical context doesn't look much better these days.


The year-over-year trend continues to slip. Although both PCE and DPI are still rising, the rate of growth continues to grind lower.

Private-sector wages—the main driver of personal income—paint a more encouraging profile from a year-over-year perspective, with April’s growth rate ticking up a bit to 3.8% vs. a year earlier. That’s roughly in line with the trend over the past two years and so from this vantage nothing’s changed. The problem is that wage growth on a month-to-month basis has stagnated, remaining close to unchanged in April. Another month or two of treading water and the annual rate for wages will turn sharply lower.

Overall, it’s fair to say that the personal income and spending data are flashing danger signs. The jig isn’t up, at least not yet, but next week’s payrolls report for May will tell us if we should really start worrying. As troubling as today’s income and spending report is, it’ll look a lot darker if the labor market suffers a hefty setback. Then again, if payrolls post a decent increase for May, the odds look a bit brighter for thinking that income and spending will stabilize and perhaps perk up a bit.