Shopaholic Woman Enjoying Shopping Spree In Supermarket

Consumer spending rose 0.8 percent last month after rising just 0.1 percent in both February and March, the U.S. commerce department reported. Even adjusted for inflation, spending was up 0.5 percent in April.

Americans spent 6.2 percent more to buy cars, but the rise in inflation was due largely to higher spending for services, including health care and insurance. Discretionary spending such as summer travel, concert tickets, and cruises also rose.

The core consumer index, which screens out energy and food prices, was up by an annual rate of 4.7 percent, ticking up from March’s 4.6 percent. Economists see the core index as a more reliable predictor of inflation’s future.

Despite the massive job losses in upper and middle-class ranges, with wages increasing and continued positive job numbers… people are spending more. 

The Personal Consumption Expenditures Index, which the U.S. Federal Reserve monitors closely, grew 4.4 percent in April, year on year, compared to 4.2 percent in March, and remains more than twice as high as the Fed’s target rate of 2 percent.

Consumer spending, which underpins two-third or more of the U.S. economy, will help GDP grow 2 percent this quarter after a lackluster 1.3-percent gain during this year’s first three months, economists expect.

Also, manufacturers’ investment in equipment grew by 1.4 percent in April, a sign that businesses expect to keep growing.

That growth will be powered, in part, by consumers spending from their remaining savings but also by April’s 0.4-percent growth in wages, the largest bump since January, The Wall Street Journal said.

And while the personal savings rate slipped slightly in April from March, data shows that it is still above the numbers reported in the last quarter of last year.

The growth in household spending was reported at the same time the University of Michigan’s monthly survey of consumer sentiment found households feeling less chipper about their economic prospects.

In this month’s poll, sentiment slipped to a rating 59.2 from 63.5 in April.

“This decline mirrors the 2011 debt ceiling crisis, during which sentiment also plunged,” the survey report said. “This month, sentiment fell severely for consumers in the West and those with middle incomes.”

“The year-ahead economic outlook plummeted 17 percent from last month,” the report added. “Long-run expectations plunged by 13 percent, indicating that consumers are concerned that any recession to come may cause lasting pain.”  

Inflation’s refusal to budge increases the chances that the U.S. Federal Reserve will raise its base interest rate yet again when it meets on 14 June. Earlier this month, before the new data was released, Fed chair Jerome Powell hinted that the central bank might pause its steady pace of increases.

TREND FORECAST: Since mid-May, some Fed officials have said publicly that inflation has not slowed enough to justify halting the rate raises. Among them Loretta Mester, president of the Federal Reserve Bank of Cleveland, said in a 26 May WSJ interview that she wants to keep raising rates until she can be sure they have peaked.

“I don’t think we’re at that level,” she added, citing the new inflation and consumer spending data.

And as we note in this Trends Journal, 66 percent of The Street is betting a 25 basis point interest rate hike after the Fed’s end their meeting on 16 June. 

Therefore, the higher interest rates rise, the deeper the economy and equity markets will fall. As we note, it takes many months before the high cost of borrowing money hits the economy… and that time is coming now. 

We also maintain our forecast that the Feds will sharply lower interest rates in the run-up to the 2024 Presidential Reality Show®.

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