3 Numbers: US consumers on a spending spree in April
- German expansion is less than stellar but strong enough to lift the Eurozone
- Germany’s official jobless rate will probably hold at a low 6.2% rate
- US consumer spending for April is expected to post a strong rebound
- The US Consumer Confidence Indicator on track for a four-month high in May
By James Picerno
Tuesday’s a busy day for economic news, including the monthly update on unemployment in Germany. We’ll also see several US reports, including the April release for personal income and spending and the Conference Board’s monthly data for its Consumer Confidence Index in May.
Germany: Unemployment Report (0755 GMT) Last week’s sentiment data suggests that Germany’s moderate growth trend will roll on, based on survey figures for consumers, the financial community and the business sector.
There’s still concern about the near-term outlook, according to business polling. But overall, the mood points to more of the same: Economic expansion that’s less than stellar but strong enough to support the Eurozone's modest recovery.
“The German economy remains on track,” said an analyst at the Hannover-based NordLB bank last week. “After an economic cooling in spring, due to the unusually strong first quarter, we can expect the economic upswing to gain pace again.”
Today’s unemployment data for May probably won’t challenge that view. The jobless rate will probably remain unchanged at a low 6.2%. Pay close attention to the monthly update on changes in the number of newly unemployed workers for deeper context about the labour market trend.
Note that the bullish slide remains conspicuous on this front and it wouldn’t be surprising to see another dip today. The population of unemployed persons has fallen in each of the seven months to April and so the downside momentum appears well established.
But the March data for personal consumption expenditures pointed to an ongoing slowdown in the appetite for consumption. PCE increased just 0.1% at the close of the first quarter, the slowest monthly gain in more than a year (albeit only fractionally, based on the second decimal point).
The good news is that the recent deceleration in monthly spending doesn’t seem to be related to weakness in personal income. Disposable personal income (DPI) – except for February’s weakness – has been holding steady at rates that are moderately above the pace of the rise in spending.
That’s a clue for thinking that consumers aren’t being forced to spend less due to a softer income trend.
Weaker spending still comes with baggage, of course, regardless of the reason. But consumers have the capacity to spend more and perhaps they will. In any case, the year-over-year data implies that spending will rebound in the second quarter. Indeed, DPI increased 4% for the year through March, the highest rate in over a year. Spending’s annual pace, by contrast, ticked lower to 3.5%, the slowest rate so far this year.
But a solid rebound in spending is expected in today’s report, according to Econoday.com’s consensus forecast. PCE is on track to rise a strong 0.7% in April.
If the prediction holds, consumption’s monthly gain will rise the most in a year, pushing the year-on-year rate for spending growth close to the highest rate for the past 12 months – roughly 3.9%. If the prediction's right, the case for expecting a Q2 rebound in US economic activity will receive a boost.
The benchmark was revised down a bit from the preliminary reading for this month, but the index still posted a solid bounce higher against April – and relative to recent history as well.
“Despite the meager GDP growth as well as a higher inflation rate, consumers became more optimistic about their financial prospects and anticipated a somewhat lower inflation rate in the years ahead,” the economist for the sentiment figures advised in a press release.
“Positive views toward vehicle and home sales also posted gains in May largely due to low interest rates.” The main source of uncertainty on the near-term horizon is bound up with whether the Fed will raise interest rates in the months ahead.
Nonetheless, CSI’s strength bodes well for today’s release of the Conference Board’s Consumer Confidence Indicator (CCI), a competing measure.
The two indices track one another, although there can be substantial differences in the short term. Economists think that today’s first look at the May data for CCI will post a solid rise to 97.0 for May against 94.2 in the previous month, according to Econoday.com.
A firmer reading for the Conference Board’s index isn’t surprising in the wake of CSI’s latest jump. If the upbeat forecast holds, the case will strengthen for arguing that consumer optimism is rising in the second quarter.
James Picerno is a macro analyst/editor at CapitalSpectator.com. Follow James or post your comment below to engage with Saxo Bank's social trading platform.