Tuesday, 2 May 2006

US spending up, income up, prices up, manufacturing up, but Fed not worked up

Yesterday's data gave little indication that the US economy is cooling. Reuters reports the news on consumer spending and income:

In Monday's first report, the Commerce Department said consumer spending rose 0.6 percent in March as incomes jumped, although much of the gain was eroded by the pickup in inflation.

The price index for consumer spending shot up 0.4 percent, while the core price index closely watched by policy-makers at the Federal Reserve rose 0.3 percent. The rise in the core inflation measure was a touch ahead of Wall Street forecasts and the largest one-month rise since October...

According to the consumer spending report, personal income rose 0.8 percent in March, partly reflecting a big pickup in transfer payments from the Medicare health-care program.

Other data were similarly positive.

In a later report, the Institute for Supply Management said its index of factory performance climbed to 57.3 last month from 55.2 in March. Economists had expected little change. A reading above 50 indicates growth in the sector, which -- according to this measure -- has been expanding steadily for nearly three years.

In another report, the Commerce Department said construction spending jumped 0.9 percent in March, more than double expectations, to a record high on the back of soaring outlays on private residential building.

But the Fed may pause anyway, according to another Reuters report.

Federal Reserve leaders on Monday emphasized their determination to keep inflation under control after a key measure of prices rose last month, but hopes for a pause in policy tightening remain intact.

This is despite the fact that real bond yields are still relatively low.

Update on 6 May: The Commerce Department has issued a correction to the personal income number. From AP/LAT:

Personal income...rose by 0.5% in March from the previous month, the department's Bureau of Economic Analysis now says. On Monday, the government put the increase at 0.8%. The mistake involved the treatment of payments related to the new Medicare prescription drug plan. The payments had the effect of boosting overall income for March and should not have been included in the March report. They are supposed to be logged for April, the bureau said.


Tax Shelter said...

I thought that you prefer the CPI over the PCE.

lim said...

Tax Shelter

You're right, but the news of the day happened to be the PCE and the Fed, so the PCE price index -- in particular, the core index -- was the more relevant one.

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