U.S.: Spending on services return in the driver’s seat, core price deflator rises above 3% - TD Bank Financial Group

ActionForex reports that analysts at TD Bank Financial Group discuss the April data on personal income and outlays in the U.S.

"Personal income declined by 13.1% month-on-month in April, reporting a slightly better performance than the 14.8% decrease anticipated by the consensus. Not surprisingly, the decline was due to the pullback in other government social benefits, which account for roughly $340 billion in stimulus checks distributed last month."

"Personal spending grew 0.5% month-on-month in April, on par with the consensus call. Spending on services rose by 1.1% in April, decelerating slightly from the downwardly revised 2.1% gain of the previous month. Gains were led by recreation services and food services & accommodations. Goods spending declined by 0.5% in April, with non-durables dropping by 1.3% m/m."

"The overall PCE price deflator rose by 0.5% m/m and 3.6% y/y in April, softer on a monthly basis than the consensus (0.6%) but stronger on a yearly basis (3.5%). The Fed’s preferred measure of inflation – core PCE price index –  rose by 0.7% m/m and 3.1% y/y, a hair above the consensus expectation for 0.6% m/m and 3.0% y/y respectively."

"Today’s report shows consumption shifting away from goods and back toward services, signaling a return to “normalcy”. Over the course of the pandemic, the services share of overall consumer spending declined from 70% to 65%. It is now moving back into the driver’s seat. This reflects the broader reopening of the economy."

"At 3.1%, core PCE price inflation is looking hot. Yet, measured against the weakest point last year, this pace is unlikely to be sustained long. Still, with signs of stronger economic growth and inflation likely to remain above 2%, it is becoming increasingly difficult for the Fed to avoid at least talking about talking about removing monetary policy accommodation."