US Consumer spending: A good start of the Q2 - Wells Fargo

Analysts from Wells Fargo pointed out that consumer spending in the US had a good start of the second quarter and it could help GDP numbers, also explained that inflation showed signs of firming again.

Key Quotes:

“Consumer spending rose 1.0 percent in April with real spending activity rising 0.6 percent for the month. Income growth remained strong while the Fed’s preferred inflation measure is up 1.1 percent from a year ago.”

“Our forecast currently calls for a 3.0 percent rise in real consumer spending in the second quarter. Even with much slower rates of spending expected over the next two months, we see sizable upside risk to our call for Q2 PCE. The stronger consumer spending numbers suggest more robust headline GDP growth in Q2 as well.”

“The continued firming in core inflation supports the Fed’s more hawkish outlook on rates compared to what markets currently have priced in. However, with inflation still running below target and growth having slowed since the Fed moved last December, we expect the FOMC to hold off on another rate rise until the third quarter. Given that we expect the PCE deflator to average 1.4 percent by the fourth quarter of this year, we also maintain our view for a second rate hike this year in the fourth quarter.”