Last month, when we noted the massive surge in Personal Spending [5]which was funded entirely by the depletion of personal savings, we said that "since spending was so much higher than income for one more month, at least according to the bean counters, the savings rate tumbled and at 3.8% (down from 4.2% in February), was the second lowest since before the Lehman failure with the only exception of January 2013 after the withholding tax rule changeover. So for all those sellside economists who are praying that the March spending spree, funded mostly from savings, will continue into Q2 (because remember March is in Q1, which as we already know had an abysmal 0.1% GDP growth rate), we have one question: where will the money come from to pay for this ongoing spending spree?" Turns out the answer was... nowhere.
Moments ago the April Personal Income and Spending data was released [6]. And while the Personal Income came in line with expectations at 0.3%, down from 0.5%, it was the Spending that posted its first contraction since April 2013, dropping at a -0.1% pace, missing expectations of a 0.2% increase (the biggest since January 2010), and a collapse from the March Personal Spending bonanza which was revised upward to +1.0%.
[7]
In short, this was the biggest monthly drop in real consumer spending since September 2009!
It is also simple math, because when your saving rate tumbles (on a revised basis) to the lowest since Lehman, there simply is no money to spend.
The full history of US personal disposable income and spending:
[8]
The good news: the savings rate did finally post a modest rebound, from 3.6% - the lowest since Lehman - to 4.0%. Which is still the second lowest number since 2008!
[9]
Bottom line: today's spending number was good for the final revision of Q1 GDP. Sadly, it was s very bad for Q2 GDP and for so-called economic momentum. Expect to see a slew of downward GDP revisions from the Penguin crew momentarily.