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Monday, June 01, 2015 12:08 PM

Income Up 0.4%, Spending Flat (Lower Than Any Economist's Estimate); Rent, Dividend, Obamacare Analysis

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Those expecting a strong bounce in consumer spending did not get it in April even though personal income and disposable personal income each rose 0.4%.

The Bloomberg Consensus estimate for April spending was for a 0.2% rise. Instead, spending came in at 0.0% lower than any estimate in the consensus range of 0.1% to 0.4%.

The consumer started off the second quarter slowly, putting income into savings and not spending. Consumer spending was unchanged in April with deep declines in spending on both durable and nondurable goods, down 0.7 percent and down 0.5 percent respectively, offset by another incremental increase in spending on services of plus 0.2 percent. Personal income, boosted by rents and dividends, rose a solid 0.4 percent though the gain for wages & salaries was less strong at 0.2 percent. The savings rate rose 4 tenths in the month to 5.6 percent.

Inflation readings are very tame with the price index unchanged in the month and the core up only 0.1 percent. The core rate, unlike April's 1.8 percent core reading for the CPI where weightings on housing and medical costs are greater, is showing less pressure, down slightly to 1.2 percent. Overall prices are barely up at all year-on-year, at plus 0.1 percent.

The April retail sales report first signaled trouble for second-quarter spending that today's report confirms. The consumer, the economy's bread-and-butter right now given weakness in manufacturing, is sitting on their hands. This report pushes back the outlook for the Fed's first rate hike.
Rent, Dividend, Obamacare Analysis

Half the growth in income was due to rents and dividends. Hmmm. Who collects rent and dividends and who pays the extra rent?

The personal saving rate, personal saving as a percentage of disposable personal income, was 5.6 percent in April, compared with 5.2 percent in March.

Where is saving coming from? Those collecting rent and dividends or the average Joe paying more for Obamacare and rent?

It's pretty easy to see what's happening here: All but the well-to-do consumers struggle with rising rent, rising medical expenses, and a recent rise in the price of gasoline.

Yet, economists continue to expect consumers to spend more money the consumers don't have, on junk consumers don't need.

There are exceptions, but economists are a collectively dense lot, sticking to their broken models instead of looking at things from a common sense point of view.

Mike "Mish" Shedlock

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