Market Wire - US Consumers Keep Spending, Inflation Levels Off

Karl Schamotta, Chief Market Strategist: karl.schamotta@corpay.com

Shrugging off high inflation and weak wage growth, American consumers kept spending last month, while the Federal Reserve’s preferred inflation measure continued rising at the same rate for the third consecutive month. Data released by the Bureau of Economic Analysis this morning showed inflation-adjusted household outlays climbing 0.7 percent in April, roughly corresponding with a previously-reported 0.9 percent rise in retail sales. In unadjusted terms, personal income rose 0.4 percent month-over-month, while wages and salaries increased 0.6 percent.

The core personal consumption expenditures index - the Federal Reserve’s preferred inflation measure - rose at a 0.3 percent rate for the third consecutive month, up 4.9 percent year over year - precisely aligning with consensus estimates.

According to estimates published after the May meeting, staff at the Fed expected the index to rise 4.3 percent this year before slowing to 2.5 percent in 2023.

Yields remained stable after the release, and the US dollar stayed on the defensive. The greenback has weakened for several consecutive sessions as a markets have absorbed the implications of a potential pause at the September Fed meeting, and a hawkish tilt from the European Central Bank.  But with month end approaching, the Memorial Day weekend beckoning and a thin data docket on the calendar for next week, liquidity conditions are deteriorating and price action could become choppy as the North American trading day unfolds.