Home Forex Personal spending, not inflation, is currently the main risk for the US.

Personal spending, not inflation, is currently the main risk for the US.

by SuperiorInvest

A new batch of important monthly data on spending, outlays and prices in the United States has been released. Personal disbursements grew 0.2% in April after an increase of 0.7% a month earlier. Revenue rose 0.3% after a 0.5% increase the previous month.

The savings-income ratio remained at 3.6% for the second consecutive month. But this indicator has maintained its downward trend since last August. Persistently lower levels of this indicator were observed in 2005-2007, when the housing market was draining the finances of American households.

Now, the pressure comes from a spike in the tax burden following pandemic-related easing.
In April last year, personal taxes had increased by 10%. As a result, a 4.5% increase in personal spending over the period led to only a 3.7% increase in disposable income. Spending, on the other hand, increased by 5.5%.
The savings-income ratio remained at 3.6%
The core PCE price index was in line with analyst expectations, adding 0.2% month-on-month and 2.8% year-on-year. The annual rate has remained unchanged for three consecutive months, exceeding the Federal Reserve's target. However, the lack of acceleration is good news, as there were risks given other inflation indicators.

We believe the main threat to markets in the coming months is a slowdown in US household spending. These households may adopt a more cautious spending pattern amid low savings rates, repeating the story of 2005-2007.

The FxPro Analyst Team

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