Implications: Consumers took a well-earned breather in April, but we don't expect the lull to last. It's important to recognize that even during periods of strong economic growth, consumer spending typically drops about once every six months. And yet, despite consumer spending being unchanged in April, it is up at a 4.7% annual rate in the past six months and up at a 3.3% rate when adjusted for inflation. Moreover, notice how this growth is after the end of the cash-for-clunkers program. We expect renewed growth in consumer spending starting in May. Personal income is up at a 4.1% annual rate in the past six months, with private-sector wages and salaries up at a 3.2% rate. Meanwhile, the financial obligations of consumers (relative to their incomes) are down substantially from the peak in early 2008. A combination of higher incomes and a smaller share needed to service debts, means consumers have more money to spend. In other news this morning, the Chicago PMI, a measure of manufacturing in that region, came in at 59.7 in May versus 63.8 in April. This suggests continued rapid growth in the factory sector, although not quite as fast as in April.
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Posted on Friday, May 28, 2010 @ 12:03 PM
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