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The economy is in a "very good situation," says Trump's man in the Fed. And the Fed's favorite measure of inflation is rising.
According to the Fed's message, it may consider lowering rates if the economy deteriorates or inflation continues to fall, but the economy is currently in a "very good situation," the report says. And consumer spending, which accounts for 70% of the economy, is growing rather than deteriorating, and the Fed's preferred measure of inflation has just risen. But do not say it on Wall Street.
Consumer spending on goods and services in April, as indicated by the Bureau of Economic Analysis's personal consumption expenditure data released this morning, rose 4.3% from April 2011, reaching a seasonally adjusted annual rate of $ 14.39 billion. This represents about 70% of the $ 20.5 trillion US economy. And that's why everyone keeps their eyes on consumers, whose only job is to consume, if not. This increase was just in range since the Great Recession, not the most red growth rate in the history of humanity, but decent:
Of the $ 14.39 billion that consumers spent, $ 9.96 billion was spent on services, which is why the service sector is so critical to the economy. $ 4.43 billion was spent on goods ($ 1.47 trillion in durable goods and $ 2.96 billion in non-durable goods). In addition, consumers generated more than $ 368 billion in interest. These are "seasonally adjusted annual rates" – that is, if consumers are keeping pace with April for the whole year, they would be totals for the year.
Real consumption corrected for inflation Spending on goods and services increased by 2.7% compared to April last year. That too was right in the lineup since the Great Recession:
So, how did consumers get so much moolah?
Personal income rose 3.9% over the previous year to reach a record $ 18.1 trillion in the seasonally adjusted annual rate in April. Personal income includes wages; salary supplements such as employer contributions to pension funds and insurance; rental income; agricultural income; interest and dividend income; government benefits such as social security, unemployment insurance or social benefits; etc. More details in a moment.
Adjusted for inflation, real personal income rose 2.4% compared with April last year, which is comparable to previous years:
Among the factors that contribute to the growth of people's incomes and expenditures, we can mention population growth (about 0.8% per year) to nearly 329 million, according to this report, employment growth (+ 1.8% over the last 12 months) and various forms of income growth.
Earnings from "wages and salaries" in this report have increased 3.6% year-over-year to a record, seasonally adjusted annual rate of $ 9.07 trillion. As high as it is, it accounts for only half of the total personal income of $ 18.1 trillion.
Among other forms of personal income, interest income rose 1.6% to $ 1.6 trillion and dividend income increased 4.0% to $ 1,117 billion.
The table below presents the personal income categories of the BEA report for the first four months of 2019. All amounts are in billions of dollars, at seasonally adjusted annual rates:
Disposable income is what is left after the government gets its personal income. It is therefore personal income minus personal taxes and other contributions to public social insurance, such as social security contributions, health insurance, unemployment insurance, and so on. Disposable income rose 3.8% from last April to a record annual rate of $ 15.96 billion.
Adjusted for inflation, real disposable income rose 2.2%, also falling in the range average:
Given this stack of disposable income minus all expenses, consumers saved $ 990 billion in April, at an annual rate adjusted for seasonal variations. This produces a savings rate of 6.2% of disposable income.
Consumers are making more money and spending most of it to support the economy, while saving a portion of it. In other words, American consumers as a whole are doing their job.
In the same report this morning, the Commerce Department said that the Fed's favorite inflation measure, the PCE price index without food and energy, or "core PCE", had risen 1.6% for the 12-month period, up from an increase of 1.5%. in March. Even if it remains below the Fed target of 2.0%, it is going in the right direction for the Fed (and in the wrong direction for consumers).
The "adjusted average inflation rate," mentioned by Fed Chairman Jerome Powell, to show that the dip in inflation was "transitory", and that eliminates outliers, has hit 2, 03%. tied with the highs in July 2018, January 2017, just below the January 2012 summit (2.10%).
And consumers are enthusiastic. The University of Michigan said this morning that its index of consumer confidence for the month of May rose from 97.2 in April to 100. This level of 100 is close to the top of the range over the past two decades. We must go back to the years of the dotcom bubble so that consumers are always more enthusiastic.
Consumer confidence can be shaken. A prolonged commercial war rhetoric, a 50% stock market crash, a sharp push for inflation that puts things out of reach, or other events could undermine consumer confidence. But in the past, we've found that even with shaken confidence, consumers continue to spend what they earn, or more than they earn, no problem, because American consumers are sturdy people .
Meanwhile, Wall Street is passionate about speculation on rate reduction, trying to outdo itself in order to throw gasoline into the flames of rate reduction. Barclays just predicted Three rate cuts this year, totaling 75 basis points, starting in September … speaking of his book.
Meanwhile, even the biggest "doves" of the Fed say: wait a minute, the economy is "in a very good place", it should deteriorate and inflation should fall before we want to consider to reduce rates.
Minneapolis Fed President Neel Kashkari was the latest. He told Bloomberg TV today that it was too early to cut rates. The low inflation and escalation of the trade war are a source of concern, he said. "Any one of these factors could be a factor of change in the direction of monetary policy," he said. But he was not yet "quite there," he said. "I am very comforted by the fact that the job market continues to be strong."
Yesterday, Fed Vice President Richard Clarida – Trump's man at the Fed – said that the economy was "in a very good position" and that economic data should reveal a significant risk of a more pronounced slowdown than that already observed by the Fed. waiting before the Fed plans to cut rates.
So it's interesting to see the growing disconnect between even the Fed's "doves", who insist it's not time to cut rates, and Wall Street, which is calling for three rate cuts this year. Meanwhile, American consumers, who are charged with supporting the economy, rather than just talking about it, are doing what they do best, working hard and spending their hard-earned money.
One of them is wrong. Be careful that it slap so ugly. Read … OK, I understand, the markets have lost their hearts: bonds with no tomorrow are at the party, the treasures demand drastic cuts
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