Highlights

  1. GDP and personal income growth have slowed, while consumer spending has decreased.
  2. The housing market landscape remains challenging as pending home sales continue to fall across all regions.
  3. Consumer confidence and sentiment data reveal mixed signals, with some optimism fueled by decreasing gas prices.

GDP, Personal Income and Spending

The fourth-quarter real GDP growth was revised down to a 1.3% annualized increase from an initial estimate of 1.6%. This downward revision also impacted personal consumption, which was adjusted to a 2.0% increase from 2.5%. Real GDP growth year over year was revised to 2.9% from 3.0%.

Personal income growth decelerated, and consumer spending growth slowed in April, coming in weaker than expected. The March figures were also revised down. Key highlights include:

Personal Income

  • Personal Income Growth: Decelerated to 0.3% from 0.5% in March.
  • Employee Compensation Growth: Slowed to 0.2% from 0.6% in March.
  • Government Transfer Payments: Growth decelerated to 0.3% from 0.8%, with reductions in Medicaid, Social Security payments, and unemployment compensation.
  • Proprietors’ Income: No change after a downwardly revised 0.2% gain in March.
  • Interest and Dividend Income: Both saw increases.

Spending Breakdown

  • Spending on Goods: In April, spending on goods declined by 0.2% after a 1.1% gain in March. Durable goods spending fell 0.2% following a revised 0.3% growth in March. Nondurable goods spending declined 0.1% in April after a 1.5% increase in March. Motor vehicles and parts spending grew 0.8% following a revised 1.5% decline in March.
  • Spending on Services: In April, spending on services was revised down to a gain of 3.9% from 4.0%. Growth in April decelerated to 0.4% from 0.6% in March.

Savings Rate and Inflation

The savings rate remained unchanged at 3.6%, with revisions to March raising it from an initially reported 3.2%. Historically, the savings rate has fluctuated between 3.6% and 4.1% over the past nine months.

  • Personal Consumption Expenditure Index: Notably, the Personal Consumption Expenditure Index, the key gauge of inflation that the Fed follows, increased by 0.3%, consistent with March.
  • Price Inflation: Overall, price inflation remained at 2.7% year over year, while core inflation stayed steady at 2.8%.

Pending Home Sales

Pending home sales, which are new contracts signed on existing homes, dropped 7.7% in April, significantly more than the expected 1.0% decline. Year over year, pending home sales were down 7.7%.

Pending home sales were down in every region of the country for the month and year over year. The Midwest declined the most in April (9.5%) and was down the most (8.7%) year over year. The Northeast saw a 3.5% decline for the month and was down 3.1% year over year.

Consumer Confidence, Sentiment and Gas Prices

Consumer confidence surprisingly increased in May, but measures of consumer sentiment showed declines for the month.

  • Consumer Confidence: As measured by the Conference Board, consumer confidence increased by 4.6% in May due to improvements in both present and future outlooks. However, consumer confidence was still down 0.5% year over year and vehicle purchase plans are unchanged compared to April and May last year.
  • Consumer Sentiment:
    • Morning Consult: The daily index of consumer sentiment from Morning Consult showed volatility in May, delivering a 2.1% decline for the month but leaving the index up 6.9% year over year.
    • University of Michigan Sentiment Index: The sentiment index from the University of Michigan, declined 10.5% in May compared to April but remained up 17.1% year over year. Median inflation expectation for one year rose to 3.3%, the highest since November. Five-year inflation expectations remained steady at 3.0%.
    • Gas Prices: In May, gas prices have declined, which may boost sentiment in June. The national average price for unleaded gas from AAA decreased by 2.8% from the end of April to $3.56 per gallon as of May 30, remaining unchanged year over year.