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Personal income grew 0.5% month-on-month (m/m) in March, an increase relative to February’s 0.3% gain and in line with market expectations.

Accounting for inflation and taxes, real personal disposable income rose 0.2% in March, a recovery from the -0.1% decline in February.

Personal consumption expenditures rose by 0.8% m/m for a second consecutive month, above market expectations (0.6%). Spending in real terms rose by a solid 0.5% m/m – the same as in February. The increase in real spending reflected growth in both goods (1.1%) and services (0.2%) outlays.

On inflation, the Fed’s preferred inflation metric, the core PCE price deflator, remained steady on both a monthly and annual basis. The measure came in at 0.3% month-over-month and 2.8% annually – the same pace as in February. While the monthly change was in line with market expectations, the annual number was higher (markets expected 2.6% y/y).

The personal savings rate fell in March to 3.2% from February’s 3.6% reading.

Key Implications

Today’s report fills in some of the details of the headline numbers reported yesterday in the Q1 GDP advance release. Despite mounting challenges and dwindling savings, the U.S. consumer powered ahead, closing out the first quarter on solid footing. As such, real personal consumption expenditure growth was 2.5% annualized in 2024 Q1 (down from 3.3% in 2023 Q4). Most of the quarterly strength came from spending on services, despite a solid showing from goods spending in the final month of the quarter. Ultimately, with a decent handoff to Q2, consumer spending is set to remain resilience.

While both annual and core PCE inflation did not decelerate, holding steady was the next best alternative. The outturn suggests that much less of the recent hot CPI inflation readings has filtered through to the Fed’s preferred metric. Not so great however was the fact that while the 6-month annualized change held steady at 3%, the 3-month annualized measure continued to trek up (from 3.7% to 4.4%) pointing to some near-term stickiness. Core services excluding housing, or supercore inflation, also suggest that near-term price pressures persists. Taken together, these developments point to the Fed continuing to exercise patience with respect to rate cuts, with markets currently betting on a first cut in the fall.

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