US consumer spending, incomes grew solidly
Home prices rising two times faster than wages
Americans increased their spending in April at the fastest pace in four months, bolstered by a solid gain in incomes. The strong results underscored expectations that the economy is poised to rebound after a lackluster start to the year.
Consumer spending rose 0.4 percent in April after a 0.3 percent rise in March, the Commerce Department said Monday. It was the best showing since December. Incomes also rose 0.4 percent, double the 0.2 percent March increase. Consumer spending, which accounts for 70 percent of economic activity, grew at the slowest pace in seven years in the first quarter. That was a key reason the economy, as measured by the gross domestic product, expanded by just 1.2 percent at the start of the year. Economists are hopeful GDP growth will rebound to around 3 percent in the current April-June quarter.
A key inflation gauge preferred by the Federal Reserve edged up a slight 0.2 percent in April, leaving prices rising just 1.7 percent over the past year - the slowest 12-month gain this year and below the Fed’s 2 percent target. Even with inflation remaining contained, economists believe the Fed will raise rates for a second time this year when official meet on June 13-14, especially if the employment report due on Friday shows job growth remaining strong. With spending and incomes both up 0.4 percent in April, the saving rate was unchanged for a third month at 5.3 percent of after-tax income. It had been 5 percent in January. The rise in spending was led by a 0.9 percent rise in purchases of long-lasting durable goods, reflecting a rebound in demand for autos after a weak first quarter. Spending on non-durable goods such as clothing was up a solid 0.6 percent, and spending on services such as utilities grew a moderate 0.3 percent.
The 1.2 percent GDP growth rate in the first quarter was far below the targets set by President Donald Trump. During the campaign, Trump blasted the Obama administration’s economic policies, saying they had contributed to the weakest recovery in the post-World War II period. He promised to double growth from an anemic 2 percent annual rate to above 4 percent with his economic program featuring tax cuts, deregulation and tougher enforcement of trade rules.
However, so far, Trump’s economic program has made little headway in Congress. He put forward last week a $4.1 trillion budget for 2018, but it has attracted criticism from both Democrats and Republicans for its sharp cuts in the government’s anti-poverty programs.
Home prices
US home prices climbed in March at the strongest rate in nearly three year as a dwindling supply of houses for sale is causing prices to significantly outpace income growth. The Standard & Poor’s CoreLogic Case-Shiller 20-city home price index released yesterday rose 5.9 percent over the past 12 months ended in March, the most since July 2014. Home values are increasing at more than double the pace of average hourly earnings, making it more difficult for many people to afford to buy a home.
“Over the last year, analysts suggested that one factor pushing prices higher was the unusually low inventory of homes for sale,” said David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices. “People are staying in their homes longer rather than selling and trading up.
A steady job market has bulked up demand among many would-be buyers, but there are fewer properties on the market. Sales listings have plummeted 9 percent over the past year to 1.93 million, according to the National Association of Realtors. The shortage of homes to buy has caused prices to rise sharply in many metro areas. The largest annual gain was in Seattle, where prices have surged 12.3 percent. Portland, Oregon recorded a 9.2 percent increase, while Dallas prices rose 8.6 percent.
Of the 20 cities in the index, the weakest gain was in New York City — an area where home prices are already high relative to median incomes. Home prices in New York City have risen 4.1 percent in the past year, still much higher than US average hourly earnings that have increased 2.5 percent over the past 12 months, according to the Bureau of Labor Statistics. —AP