Highlights
The consumer sector appears to be softening as personal income growth in April slowed as did spending. Inflation eased for the month but remains high on a trend basis. Personal income in April slowed to a 0.2 percent increase, following a 0.4 percent advance in March. April's gain equaled the consensus forecast for a 0.2 percent rise. But the average worker appears to be bearing the brunt of the economic slowdown as the wages and salaries component actually fell 0.2 percent, following a 0.5 percent boost the month before. The strength in personal income was gains in rental income and especially a jump in government benefits. The surge in benefits reflected the start of the income tax rebates intended to boost the economy. The April change in personal current transfer receipts was boosted $7.8 billion at an annual rate to reflect payments under the Economic Stimulus Act of 2008 and compares to the total increase in personal income of $20.1 billion for April.

On the spending side, personal consumption rose 0.2 in April after jumping 0.4 percent in March. The consensus had forecast an increase of 0.2 percent for personal spending. Year-on-year, personal income growth rebounded to 4.8 percent from 4.4 percent in March. Personal consumption growth slowed to 4.8 percent in April from 5.3 percent the prior month.

On the inflation front, the headline PCE price index came in with a 0.2 percent increase, following a 0.3 percent gain in March. The core PCE price index slowed to 0.1 percent in April, following a 0.2 percent increase the prior month. The consensus forecast called for a modest 0.1 percent rise for the core. On a year-ago basis, headline PCE inflation held steady at 3.2 percent year-on-year while core PCE inflation was unchanged at up to 2.1 percent.

While today's numbers are essentially at market expectations, there is a clear slowing in the consumer sector - and the decline in wages and salary income should be disconcerting. The markets may shrug off the numbers but the detail suggests that weakness in the consumer sector may be more than expected. As an aside, the income tax rebates certainly were important in April - but they may well be eaten up by higher prices at the gasoline pump.