Personal Income and Outlays for April 2010

Released on 5/28/2010 8:30:00 AM For Apr, 2010 Prior Consensus Consensus Range Actual Personal Income - M/M change 0.3 % 0.5 % 0.3 % to 0.6 % 0.4 % Personal Income - Yr/Yr change 3.0 % 2.5 % Consumer Spending - M/M change 0.6 % 0.2 % -0.1 % to 0.5 % 0.0 % Consumer Spending - Yr/Yr change 2.9 % 4.6 % Core PCE price index - M/M change 0.1 % 0.1 % 0.0 % to 0.1 % 0.1 %

Highlights Consumers are getting healthier-at least financially-as income gains continue. But the consumer paused growth in spending in April after strong gains the prior two months. Personal income posted a solid 0.4 percent increase for April, matching the gain the month before. The April figure came in slightly lower than the market forecast for a 0.5 percent boost. Importantly, the latest increase is in what really counts as the wages & salaries component advanced 0.4 percent after rising 0.3 percent in March. But spending growth hit a speed bump in April. Overall, personal consumption was flat, following a 0.6 percent rise the prior month and 0.5 percent in February. The April number fell short of analysts' projection for a 0.2 percent increase. April was weakened by a drop in nondurables and was mostly price related. Inflation is still almost nonexistent. The headline PCE price index was unchanged in April-easing from up 0.1 percent in March. The core rate also was soft, gaining only 0.1 percent and matching both March and the consensus forecast. Year on year, personal income growth for April came in at 2.5 percent, slipping from 2.8 percent in March. Year-ago headline PCE inflation was unchanged at 2.0 percent. Year-ago core PCE inflation edged down to 1.2 percent from 1.3 percent in March.. The good news is that consumers are finding more greenbacks in their wallets and this should support additional spending and the recovery. April's PCEs number was mildly disappointing but not so much in light of how strong the prior to months were. The consumer on average is now pulling its weight in the recovery. And the Fed likes the inflation news. On the news, equity futures were little changed.

Market Consensus Before Announcement Personal income strengthened in March, gaining 0.3 percent, following a 0.1 percent rise the prior month. The heavily-weighted wages & salaries component increased 0.2 percent in March after edging up 0.1 percent in February. However, the highlight of the report was that personal spending outpaced income with PCEs posting a 0.6 percent boost in March, following a 0.5 percent jump the month before. The headline PCE price index firmed to up 0.1 percent after no change in February. The core rate also edged up 0.1 percent in March after no change the month before. Looking ahead, personal income in April should be boosted at least by the wages & salaries component as aggregate weekly earnings jumped 0.9 percent for the month, according to the jobs report. PCEs should be moderately healthy as retail sales excluding autos rose 0.4 percent. But the auto component is a question as unit new motor vehicle sales declined but the auto component in retail sales gained-likely a price effect. PCE inflation should be subdued as the April CPI fell 0.1 percent and the core CPI was flat.

Definition Personal income is the dollar value of income received from all sources by individuals. Personal outlays include consumer purchases of durable and nondurable goods, and services.  Why Investors Care

Changes in taxes or social security cost of living adjustments can cause some sharp variations in monthly disposable income growth. However, on the whole, monthly changes in disposable income fluctuate less than monthly changes in personal consumption expenditures. Data Source: Haver Analytics

Monthly changes in personal consumption expenditures are usually skewed by large changes in spending on durable goods. Spending on nondurable goods and services tend to be less volatile from one month to the next. Data Source: Haver Analytics