By Lucia Mutikani
WASHINGTON (Reuters) - U.S. consumer spending rose more than expected in April as households boosted purchases of goods and services, and the increase in inflation slowed, which could underpin economic growth in the second quarter amid rising fears of a recession.
The economy's near-term prospects were also brightened by other data from the Commerce Department on Friday showing the goods trade deficit narrowed sharply last month. A record trade deficit caused a contraction in output in the first quarter.
"The economy can always turn on a dime, but at this point in the economic cycle, consumers are still spending their hearts out, keeping the recessionary winds at bay," said Christopher Rupkey, chief economist at FWDBONDS in New York.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.9 percent last month. Data for March was revised higher to show outlays racing 1.4 percent instead of 1.1 percent as previously reported. The strength in spending is despite consumer sentiment being at its lowest level since 2011.
Goods spending increased a solid 0.8 percent, driven by new motor vehicles, clothing, footwear, recreational goods as well as furnishings and household equipment. Demand for goods remains strong even as spending on services is picking up.
Services outlays rose 0.9 percent as consumers frequently dined out and traveled. There was also increased spending on housing and utilities, and recreation services.
Economists polled by Reuters had forecast consumer spending gaining 0.7 percent. Spending is being supported by massive savings as well as strong wage gains, with companies scrambling to fill a record 11.5 million job openings as of the end of March.
Personal income rose 0.4 percent, with wages accounting for the bulk of the increase. The saving rate dropped to 4.4 percent, the lowest since September 2008, from 5.0 percent in March. That suggests households have been tapping into the more than $2 trillion in excess savings accumulated during the COVID-19 pandemic.
The reduction in savings could mean slower consumer spending down the road, especially given the rising borrowing costs.
"High-and middle-income households still have some savings amassed," said Diane Swonk, chief economist at Grant Thornton in Chicago. "Households in the bottom quintile have now tapped what little they had in excess reserves."
The Federal Reserve's hawkish monetary policy stance as it fights to quell high inflation and bring it back to its 2% target has fanned worries of a recession. Fears of an economic downturn have also been exacerbated by Russia's dragging war against Ukraine as well as China's zero COVID-19 policy, which have further entangled supply chains.
The U.S. central bank has raised its policy interest rate by 75 basis points since March. The Fed is expected to hike the overnight rate by half a percentage point at each of its next meetings in June and July.
Strong consumer spending offered some reprieve for risky assets like equities after a recent sharp sell-off. Stocks on Wall Street were higher. The dollar was steady against a basket of currencies. U.S. Treasury prices were mixed.
Smaller Trade Gap
Although inflation continued to increase in April, it was not at the same magnitude as in recent months. The personal consumption expenditures (PCE) price index rose 0.2 percent, the smallest gain November 2020, after shooting up 0.9 percent in March.
In the 12 months through April, the PCE price index advanced 6.3 percent after jumping 6.6 percent in March.
The annual PCE price index increase is slowing as last year's large gains drop out of the calculation.
Excluding the volatile food and energy components, the PCE price index gained 0.3 percent, rising by the same margin for three straight months. The so-called core PCE price index increased 4.9 percent year-on-year in April, the smallest gain since last December, after rising 5.2 percent in March.
It was the second straight month that the rate of increase in the annual core PCE price index decelerated. This inflation measure is the most followed by economists and policymakers.
"We need to see the monthly increases cool more meaningfully before the Fed can breathe," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.
The moderation in inflation bodes well for GDP growth this quarter. When adjusted for inflation consumer spending increased 0.7 percent in April after rising 0.5 percent in the prior month.
There was more goods news, with a second report from the Commerce Department showing the goods trade deficit dropped 15.9% to $105.9 billion in April. The narrowing reflected a 5.0 percent decline in imports.
While weak imports are good for the top line GDP number, they could be flagging a slowdown in consumer spending and business investment. Imports of both capital and consumer goods fell. Motor vehicle imports, however, rose. Good exports increased 3.1 percent boosted by shipments of food products.
Wholesale inventories increased 2.1 percent last month, while stocks at retailers advanced 0.7 percent. Following Friday's data, Goldman Sachs raised its second-quarter GDP growth estimate by two-tenths of a percentage point to a 2.8 percent annualized rate.
The economy contracted at a 1.5 percen pace last quarter because of the massive trade deficit and slower inventory accumulation relative to the fourth-quarter's robust rate.
(Reporting by Lucia Mutikani; editing by Nick Zieminski and Chizu Nomiyama)
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Sen. Joe Manchin
(Reuters) - Senator Joe Manchin of West Virginia has signaled support for climate provisions including a watered-down methane fee and carbon border tax in a slimmed down Build Back Better spending bill, and he and fellow Democratic lawmakers are aiming for a deal by the end of June, two sources familiar with the matter told Reuters.
(Reporting by Jarrett Renshaw and Trevor Hunnicutt; Editing by Richard Valdmanis)
Donald Trump
Donald Trump is still the most dominant Republican in the country, but his very mixed primary record has left his air of invincibility in tatters.
As The Washington Post's Aaron Blake notes, Trump has a 30% problem. While several of his endorsees won their races convincingly, most of them either won or lost with a less-than-middling 30-some percent of the GOP vote. They include:
- Rep. Madison Cawthorn of North Carolina (North Carolina House): Lost
- Charles Herbster (Nebraska governor): Lost
- Rep. Jody Hice of Georgia (Georgia secretary of state): Lost
- Lt. Gov. Janice McGeachin (Idaho governor): Lost
- Mehmet Oz (Pennsylvania senator): Too close to call, recount underway
- J.D. Vance (Ohio senator): Won
But the overarching trend suggests that Trump's endorsement typically guaranteed candidates getting right around a third of the Republican primary vote or less. In other words, the "the hardcore Trump 'stolen election' contingent appears shy of a majority of the party," as Blake wrote.
Plus, primaries typically attract the most active and fervent voters, so the die hard 2020 election deniers and Trump cultists will likely make up an even smaller slice of GOP voters in a general election.
To reiterate, Trump is still the odds-on favorite to win the 2024 GOP nomination if and when he announces, and the MAGA movement is still pulsing through the GOP electorate.
But at the same time, Trump is more vulnerable now than he was heading into the Republican primaries, and everyone seems to know it.
By and large, profile-in-courage awards aren't going to any Republicans, other than maybe Reps. Liz Cheney of Wyoming, Adam Kinzinger of Illinois, and several others who voted to impeach Trump. But some Republicans outside of Washington are testing the waters of betrayal.
Former New Jersey Gov. Chris Christie has been crowing about the Republican Governors Association's $5 million investment in Georgia to insulate Kemp from Trump's revenge tour.
"What we have to decide is: do we want to be the party of me or the party of us? What Donald Trump has advocated is for us to be the ‘party of me,’ that everything has to be about him and about his grievances," Christie told Politico. “Trump picked this fight."
What Christie is actually asking there is, “Do we want a party at all, or just a cult?”
Former Vice President Mike Pence—who is weighing a presidential run despite a brush with death by hanging—dared to campaign with Kemp in open defiance of Trump. Sens. Ted Cruz of Texas and Rand Paul of Kentucky both campaigned for the Senate bid of Rep. Mo Brooks of Alabama well after Trump cut Brooks loose when it appeared he was tanking. New Hampshire Gov. Chris Sununu even called Trump "fucking crazy" during the annual Gridiron Club event in Washington last month.
"The press often will ask me if I think Donald Trump is crazy. And I'll say it this way: I don't think he's so crazy that you could put him in a mental institution. But I think if he were in one, he ain't getting out!" Sununu said in his remarks.
All this has Trump a touch on edge, and some aides and party officials have been trying to talk him down from announcing his 2024 bid before the midterms are over, according to The Washington Post. He's constantly peppering his aides with questions about polling, his potential rivals, and who they are meeting with. He's also weighing the announcement of a so-called presidential exploratory committee to freeze the field.
The argument against an early announcement is party-based: Republicans don't want Trump to inject himself into the midterms in November any more than he already has. The argument for announcing early is Trump-based: Chase most potential challengers out of the race before they get any momentum. But Trump also has legal considerations, particularly regarding any liability for the January 6 insurrection. If Trump were officially running, it would pile one more giant headache onto an already fraught web of considerations at the Department of Justice.
Whenever Trump announces—and it seems certain that he plans to—he will clearly have competition now.
“It isn’t going to be a clear field for him. There’s a lot of people who want to go against him,” one GOP operative who recently met with Trump told the Post. “If he runs, [Mike] Pompeo, Pence and Chris Christie all will consider running against him. Who knows what [Florida Gov. Ron] DeSantis will do? These guys are out there working, they are hitting every donor they can find, they want to run.”
And yet, Trump still dominates the field in every poll on the topic. A recent Post/ABC poll found that 60 percent of Republicans want GOP leaders to follow Trump's lead for the party versus 34% who said they wanted the party steered in a different direction.
The same poll also found that 54 percent of Americans overall believe Trump should be charged with inciting the January 6 insurrection.
