Last week’s downward revision to Q1 U.S. GDP growth was mainly due to softer consumer spending on durable goods. There’s a reason personal consumption influences overall GDP more than other categories: consumers buy a large majority of total U.S. output. But what drives U.S. consumption growth? For all the attention paid to wealth effects and attitudes toward the economy, income is what drives spending. That makes the BEA’s personal income and outlays report among the most important we receive each month. Last Friday’s April report showed that inflation continues to slow for consumers, particularly for goods and services traded on an open market. Perhaps related to this, growth in wages and salaries decelerated on both a monthly and annual basis. Same with personal consumption. A weakening labor market in which wages are growing more slowly is nearly certain to lead to weaker consumer spending, especially with interest costs rising and savings rates already so low.

The Macro Week In Review

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