Rising personal income not matched by increased spending

Aided by an increase in employment, personal income rose 0.4% in April, matching March’s increase.  But consumer spending, which posted decent gains in February and March was flat.

Nothing to be to alarmed about, especially after decent gains in recent months – average annualized gains in spending since 3Q have come in at almost 5%.

The rise in income, which was not matched by an increase in spending, helped boost the savings rate from 3.1% to 3.6%, the first rise since December.

Consumer spending is the engine that drives economic activity, accounting for about 70% of GDP.  The rise in the savings rate, coupled with recent gains in employment, are likely to help fuel spending in the coming months.

However, jobless claims remain high, suggesting that employment gains will be limited, which in turn, may hamper any rise in spending.