The Big Picture
Column Summary:
*Consumers saved more and spent less in April, likely due to economic uncertainty and tariff concerns.
*Personal income and real disposable income, though, rose robustly in April.
*There is pent-up spending potential in the higher savings rate and healthy increase in real disposable personal income.
The markets got the reciprocal tariff pause that refreshes in the month of April, and today they got a Personal Income and Spending Report for April that held some refreshing potential.
The latter is decisively true on the income side, as personal income increased a robust 0.8% month-over-month, while real disposable personal income jumped 0.7%. That is the fuel for spending activity that promises to keep the economy on a growth track.
Some Hard News
Not long ago, there were ruminations that the economy was destined to slip into a recession. Those ruminations came rushing into the market narrative when the reciprocal tariffs were announced on April 2, yet they rushed back out to a large extent when the 90-day pause on global reciprocal tariffs was announced on April 9, excluding China, and then again in mid-May when China was ultimately brought into the reciprocal tariff pause fold.
The recession concerns were stoked by reports of a collapse in consumer sentiment, yet that soft survey data was never truly corroborated by the hard economic data. The Personal Income and Spending Report is a piece of "hard data," and it was not hard to see in it that the consumer has the capability to keep spending.
The report, though, also captured the reality that consumers moderated their spending in April amid the heightened stock market volatility and the on-again-off-again tariff approach.
To wit: real disposable personal income increased 0.7%, yet real personal spending increased only 0.1%, with spending on goods declining 0.2%; meanwhile, the personal savings rate, as a percentage of disposable personal income, jumped to 4.9% from 4.3%.
What this suggests is that consumers made a push to save more and spend less. This is a natural response in an environment riddled with uncertainty, talk of potential job losses, and chatter about a possible recession.
Those issues were mitigated to a decent extent by the tariff pauses and a burgeoning belief that the impact of the tariffs won't be as bad as initially feared. Time will tell, but the writing is also on the wall of the Personal Income and Spending Report that there is pent-up spending potential that will be good for the economy if it is unleashed.
Briefing.com Analyst Insight
Here again the personal savings rate is a focal point. It is the highest it has been since May 2024, but the gain in real disposable personal income is the real source of excitement. It accelerated to 2.9% year-over-year from 2.1% in March.
Source: FactSet
The year-over-year gain in real disposable personal income in January was just 1.3%. There is room for further improvement, which may come to fruition if the reconciliation bill gets passed by Congress, but for now the trajectory is on the right path and bodes well for continued spending growth.
Not only are most people still gainfully employed, they are earning more in real terms. That is the key for discretionary spending activity, along with the confidence one has in their job security.
It is understandable why there was a moderation in spending in April, but with stock prices soaring from their April 7 low, tariff fears ebbing, and layoff activity still modest, as seen in the initial jobless claims readings, there is ample reason to think the U.S. consumer will remain a mainstay of support for the U.S. economy and that the economy will continue on a growth track in the second quarter.
