Some Friendly Inflation News Appears

  • The last major piece of economic information is out this morning and April personal spending slightly bested expectations rising 0.9% vs. the 0.8% forecast but was off against March spending which was revised higher from 1.1% to 1.4%. Adjusted for inflation, spending rose 0.7% vs. 0.5% in March.


  • That solid spending came against an increase in income of just 0.4% vs. 0.5% expected and March’s 0.5%.


  • With spending growth more than double the pace of income growth the personal savings rate dipped to 4.4% vs. 5.0% in March. The 4.4% savings rate is the lowest since September 2008 and is a clear indication that consumers are digging into that war chest of savings they built up during the last two years to finance more and more consumption (see graph below).


  • That war chest of savings is ample, as every banker can attest with bloated deposits, but if income gains continue to moderate that liquidity will start to come down as it’s spent. Will it impinge on spending levels? Probably not yet, but it does indicate that spending growth is due to slow in the near future absent another surge in incomes.


  • The inflation numbers in the report seem to buttress the argument that peak inflation is behind us. The PCE deflator rose 0.3% for the month, matching expectations, but is well below the 0.9% rate in March. The year-over-year rate fell to 6.3% vs. 6.6% in March.


  • The core PCE deflator (ex-food and energy) rose 0.3%, matching expectations and matching the last three  months at that rate. The year-over-year rate dipped to 4.9% vs 5.2% in March. The 4.9% rate matched expectations and is the lowest core PCE since December. So decent news on the inflation front and certainly the Fed will applaud that it’s finally moving in the right direction.


  • The Treasury curve is flattening ever-so-slightly off the income, spending and inflation news with the short-end essentially flat while longer maturities are rallying a handful of ticks on the somewhat friendly inflation data. The 10yr is sitting around 2.73% and the 2yr around 2.47%. So, it looks like Treasuries may head into the long weekend with a little wind at their backs but recent ranges are likely to hold.
Personal Savings Rate

Source: Bloomberg


Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 2.49 2.69 2.81 2.98 3.27 3.73
0.50 2.47 2.67 2.75 2.87 3.13 3.61
1.00 2.47 2.63 2.72 2.83 3.03 3.48
2.00 2.62 2.66 2.75 2.92 NA
3.00 2.70 2.85 NA
4.00 2.81 NA
5.00 2.77 NA
10.00 NA

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Published: 05/27/22 Author: Thomas R. Fitzgerald