US personal income and spending data were weak in April, with real disposable income unchanged over the month. Furthermore, with downward revisions to prior months, real incomes have gone nowhere so far in 2011.
That means increases in prices have completely offset the boost to nominal incomes of recent better jobs growth and the payroll tax cuts that took effect in January. What that means is that households had to reduce their savings rate to generate the modest 2.2% seasonally adjusted annual rate (saar) increase in consumption in the first quarter of the year. Indeed the savings rate fell from 5.4% in January to 4.9% in March and April.
This confirms a weak outlook for consumption as strong increases in real incomes are unlikely anytime soon, although if the downward trend in oil and petrol prices continues, there may be some respite later in the year.
With the release of the second estimate of first quarter 2011 GDP at 1.8% saar and the soft start to the second quarter, our full-year 2011 GDP forecast is now back down to 2.6%. We continue to expect 2.5% in 2012 reflecting tighter fiscal policy. These forecasts make us even more comfortable with our expectation of no tightening in monetary policy in the US this year.