As Consumers Keep Spending, Inflation Eases Slightly

What Friday’s Economic Reports Tell Us

Father and daughter eating lunch in a diner.

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Consumers forged ahead in April, continuing to spend money as a closely watched measure of inflation slowed a bit, reports showed Friday.

Here’s a quick look at the most significant economic indicators of the day and what they tell us.

Personal Income and Spending

  • Consumers continued to spend in April despite being squeezed by inflation, according to the Personal Consumption Expenditures (PCE) report from the Bureau of Economic Analysis. Spending increased 0.9% last month, less than the 1.4% in March, but more than the 0.7% economists expected. 
  • Fueled by a 0.6% increase in wages, consumers had a slight edge on prices that went up just 0.2%, well below the price increases of recent months. (See below.) However, inflation is taking a toll on savings for many. People saved just 4.4% of their disposable income in April– less than half their saving rate just one year ago and the lowest since the depths of the last recession in 2008.
  • The numbers show how resilient consumers have been in the face of soaring inflation, economists said. In fact, James Knightley, chief international economist at ING, now expects GDP to grow at an annualized rate of more than 3% in the second quarter after a drop in the first quarter.

PCE Inflation

  • A closely watched measure of inflation finally eased a bit. The Personal Consumption Expenditures (PCE) price index decelerated for the first time in a year and a half, rising 6.3% between this April and last April. That’s down from the 6.6% increase seen in March, the highest inflation rate since 1982. 
  • Prices rose at a far slower pace in April (0.2% compared to 0.9% in March,) though a big reason was a brief decline in gas prices that are back to setting record highs. The core inflation rate, which excludes more volatile food and energy prices, held steady at 0.3% for the third month.
  • The PCE index mirrored the April deceleration in the Consumer Price Index, the other popular measure of inflation. Economists said the Federal Reserve will continue to increase its benchmark interest rate to get inflation more under control.

Trade in Goods

  • The U.S. trade deficit for goods narrowed more than expected in April, falling 16% to $105.9 billion, according to preliminary data from the Census Bureau. Imports fell for the first time in nine months, dropping $14.8 billion after increasing a hefty $29.3 billion in March, probably because China’s COVID-19 restrictions hurt its business activity, economists said. Exports also contributed to the improvement, rising by $5.2 billion.
  • The smaller gap between imported and exported goods is a welcome reprieve from March’s record high of $125.9 billion, which contributed to a decline in first-quarter GDP. It’s an encouraging sign that the trade deficit shouldn’t be as much of a drag on the economy in the second quarter, some economists said.

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  1. MarketWatch. “US Economic Calendar.”

  2. Bureau of Economic Analysis. “Personal Income and Outlays, April 2022.”

  3. ING. “US Consumer Spending Points to 3%+ GDP Growth This Quarter.”

  4. Census Bureau. “Monthly Advance Economic Indicators Report, April 2022.”

  5. Moody’s Analytics. “United States: International Trade in Goods - Advanced : Moody's Analytics Economic View.”

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