Consumer spending was unchanged in April. What does it mean for the U.S. economy and the gold market?
On the surface, the April’s report on personal income and outlays seems to be positive. Personal incomes and disposable personal income each increased by 0.4 percent monthly. Despite these rises, consumer spending unexpectedly stalled in April, marking the weakest performance since January. The flat spending means that Americans remained cautious and saved more, which puts into question the significant rebound in the second quarter. Consumers cut back on spending on both durable and nondurable goods (0.7 percent and 0.5 percent respectively), while they spent more on services (by 0.2 percent), such as healthcare or rents.
Indeed, half of the growth in personal income was due to rents, interest and dividends. The rental income rose by 0.6 percent, while personal income receipts on assets (interest and dividends) increased by 1.2 percent, much stronger than the overall growth or wage growth (increase of 0.2 percent). This means that the income and wealth of the well-to-do asset owners are increasing (e.g., due to the stock bubble), but the average Joe is struggling with rising rent and medical expenses. So much for stable and healthy economic growth.
Regarding inflation, the PCE price index was also flat in April, while the core rate (excluding food and energy) rose by 0.1 percent. On an annual basis, headline inflation rose by 0.1 percent, while the core PCE index increased by 1.2 percent, much below the Fed’s target at 2 percent.
This is why the gold prices initially rose after weak data on consumer spending. However, the yellow metal gave up those gains after data on manufacturing activity and construction spending. According to the Institute for Supply Management, the national factory activity index rose to 52.8 in May from 51.5 in April, beating the pessimistic expectations after weak Chicago PMI. And construction spending rose by 2.2 percent in April to $1.01 trillion, according to the U.S. Commerce Department’s last report.
To sum up, consumer spending in April was flat, which is a sign of weak economic growth. What they save on energy, Americans spend on rising medical care costs and rents. Personal income rose by 0.4 percent, but half of that was due to rents, interests and dividends. This is why the gold prices initially rose after the report was published. However, the relatively strong data on manufacturing activity and construction spending exerted downward pressure on the yellow metal.
This week is full of important data, so it can be an interesting time in the gold market. Today we will know the data on factory orders in April, while tomorrow the trade deficit for April and the Beige Book will be published. And on Friday, the non-farm payroll report for May will be released. This will be the crucial piece of data for the gold market in the following days.
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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