US Savings Rate Crashes To Lowest Since Lehman, Fed's Favorite Inflation Signal Near 40-Year Highs

Both income and spending were expected to rise in April (with Americans spending more than they earn once again – as we already have seen hints of from the record surge in credit card use). And as expected spending soared (+0.9% MoM vs +0.8% exp) while incomes grew only modestly (+0.4% MoM vs +0.5% exp)…

Source: Bloomberg

This is the 7th straight month of rising incomes.

On a YoY basis, incomes bounced back into the green (+2.6% YoY) due to the low basis, but spending growth slowed to +9.2% YoY…

Source: Bloomberg

All of which means the savings rate collapsed to just 4.4%, its lowest level since Sept 2008 (Lehman!!)

Source: Bloomberg

Real personal spending picked up once again…

Source: Bloomberg

Finally, the most important aspect of today’s report is The Fed’s favorite inflation indicator – The PCE Deflator – which was expected to slow in April. The headline print came in hotter than expected at +6.3% YoY (vs +6.2% exp and below the prior +6.6% print). Core PCE came in at +4.9% as expected, slower than the +5.2% YoY in March…

Source: Bloomberg

PCE breaks down as follows…

These levels of inflation are still at 40 year highs, so don’t get too excited by the second derivative.