U.S. consumer spending jumped 0.4 percent in April. What does it imply for the gold market?
Personal consumption expenditures increased 0.4 percent in April, following a 0.3 percent rise in March (after an upward revision from the previous lack of change). The result is in line with expectations. On an annual basis, consumer spending rose 4.3 percent, significantly less than in the previous month, as one can see in the chart below. The pace of real personal consumption expenditures growth also decreased from 3.1 to 2.6 percent.
Chart 1: Nominal personal consumption expenditures (blue line) and real personal consumption expenditures (red line) from 2012 to 2017 (as percent change from year ago).
The rebound in consumer spending signals that the economy sped up in the spring, or just that the reported weak GDP in the first quarter was a statistical quirk. Hence, the uptick in spending is bad news for the gold market.
The income side of the report was also positive, as personal income jumped 0.4 percent in April, following a 0.2 percent increase in the previous month. The rise in income was also in line with expectations. Importantly, the wages and salaries component soared 0.7 percent, which should be welcomed by the FOMC members. And personal incomes seem solid on an annual basis, as one can see in the chart below.
Chart 2: Nominal personal income over the last 5 years (as percent change from year ago).
The PCE price index and its core version increased 0.2 percent in April, after a 0.2-percent and 0.1-percent drop in the previous month, respectively. On an annual basis, the core PCE price index excluding food and energy prices rose 1.5 percent, while the overall PCE price index jumped 1.7 percent. It means that inflation retreated further from its five-year peak hit in February, as one can see in the chart below. Therefore, the weakened inflationary pressures could theoretically ease some pressure on the Fed to raise interest rates in the future, but the U.S. central bank is still expected to increase them in June.
Chart 3: PCE Price Index (blue line) and Core PCE Price Index (red line) as percent change from year ago, from 2012 to 2017.
The bottom line is that the April personal income and outlays report was solid, but generally in line with expectations, so it should not affect the markets significantly. But strong consumer spending, rising wages and the rebound in monthly inflation strengthen the case for an interest rate hike in June, which could put gold under some pressure. However, the hike was widely expected even without the report, so the impact on gold should be limited. And there is still a lot of political uncertainty (for example, Comey is expected to testify soon), which could provide some support in the short term. Stay tuned!
Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.