Personal income surged in April on the large infusion of government stimulus payments. The only problem was that there were fewer places to spend it.
Personal income rose by 10.5% in April, well above the 6.0% decline expected that did not consider the inclusion of the transfer payments.
Current transfer receipts rose by $3.0 trillion due to a large jump in the “other” transfer payments category, which includes all of the government stimulus measures. Added measures will continue to show up in this category.
Additionally, there was a large gain in the regular unemployment insurance category, which reflects that state portion. This trend will continue into the May data as claims continue to pile up week after week.
The other income categories provided some offset. The historic payrolls decline in the month more than offset a large gain in hourly earnings, cutting wages and salaries by 8.0%.
The level of payrolls will remain low in May, but the monthly change should not be as drastic, so a rise in hourly earnings could translate into a rebound in wages next month. But the level of wages will remain remarkably low for some time.
Proprietors’ income fell by $12.2 billion after an $8.4 billion decrease in the previous month, while return on assets fell by $1.5 billion, with both interest and dividend income down.
The large stimulus payments more than offset the other declines, but did not translate into increased spending, due in large part to the fact that there were significantly fewer places to spend money.
The savings rate jumped to 33.0% in April from 12.7% in March. In normal times, this would suggest there could be a significant jump in consumption in the next few months, but uncertainty may keep some of that pent-up savings from entering the economy.
On the spending side in April, current-dollar personal consumption expenditures fell by 13.6%, below the 12.3% decline expected. Retail sales, particularly for restaurants, plunged even further in April. Goods PCE declined by 16.5% on food and beverages, while services PCE fell by 12.2% on declines on health care and food services and accommodations.
After adjustment for a 0.5% decline in the PCE price index, real PCE fell by 13.2%, starting off the second quarter on a very weak note, down 52.8% at an annual rate from the previous quarter. The GDP data released on Thursday showed that real PCE fell by 6.8% in the first quarter.
Core PCE prices fell by 0.4% in April, below the 0.3% decline expected, after a flat reading in March. The year-on-year rate fell to 1.0% from 1.7% in the previous month.
In other data released on Friday, the Chicago PMI came in below expectations, falling to a reading of 32.3 in May, the lowest since March 1982, after plunging to 35.4 in April. Other regional data also indicated contraction, but at a slower pace. There were notable declines in new orders and production, but employment ticked up slightly. The national ISM data will be released on Monday.
The Michigan Sentiment index for May was revised down to 72.3 from the 73.7 preliminary estimate. The reading is still an improvement from 71.8 in April. The current conditions and expectations readings were both revised lower. As more states reopen, confidence should continue to tick up. However, it will be some time until confidence returns to its pre-crisis levels.
The advance trade data for April showed a wider trade gap than in March, but the bigger story is that imports and exports both declined significantly as barriers remain up for economic and health purposes. The full trade report will be released on June 4.
Released at the same time, wholesale inventories rose by 0.4% in the month, but retail inventories plunged by 3.6% due to a severely reduced supply of vehicles due to lower production and demand. Total factory inventories will be released on June 3. The durable goods portion released on Thursday showed a 0.2% gain.