Personal income fell 2% in March along with disposable income as the impact of the coronavirus pandemic continues to affect people’s lives and finances. Consumer spending took a major drop of 7.5%, with most households remaining indoors. This resulted in net savings of 13.1%, up from 8%, due to the drop in spending outpacing that of incomes. PCE came in at 1.3% annually and core PCE came in at 1.7%.
Key Takeaways
- Spending fell more than incomes did last month, resulting in net savings rising from 8% to 13.1%.
- The PCE index rose 1.3% annually, down from 1.8% the month before.
- Core PCE, the Fed’s measure of inflation, slipped from 1.8% to 1.7% annually.
PCE and consumer spending fell at the fastest rate in almost 40 years in March. Spending fell 7.5% vs. approximately 4% expected. The coronavirus pandemic has led to the mass shutdown of businesses throughout the US, with 30 million people applying for unemployment benefits in the last six weeks since the escalation of the US outbreak.
Q2 GDP slipped a reported 4.8% according to the latest report, and consensus indicates that the true contraction was likely several percentage points higher. Q2 GDP will likely register the worst drop in US history. Inflation pressures have eased off, and the US Commerce Department reported that the 0.1% drop in core PCE seen in March was in line with expectations. Fed Chairman Jerome Powell voiced the belief that deflation will not occur because expectation of inflation is still widespread.
Real disposable #income -2.0% in March w/ sharp fall in compensation while #consumer spending plunged 7.5% (worst ever)
- real disp income -1.7% >> 0.1% y/y
- real cons -7.3% >> -5.0% y/y- headline PCE -0.3% >> #inflation 1.3% (-0.5ppt)
- core PCE -0.1% >> inflation 1.7% pic.twitter.com/zOuwfcv0dw— Gregory Daco (@GregDaco) April 30, 2020
With no end to the quarantine procedures in sight, it’s unclear what the future holds for the US economy. While economists believe that a recovery from the coronavirus pandemic could begin within two years of lockdown being lifted, making this a shorter-lived financial crisis than preceding ones, the current crisis may prove to be the most dramatic in terms of sheer loss of jobs, closure of businesses, and general short-term economic impact.
Market Reaction
Gold prices are weaker on the day, currently testing support at $1,700. Spot gold last traded at $1,701.56/oz, down -0.73% with a high of $1,721.19/oz and a low of $1,699.18/oz. The slight drop in inflation may have accounted for the downward pressure, and it’s also likely that gold is undergoing a natural correction following strong gains seen in recent days.
Gold Price Chart
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