US Savings Rate Crashes To Lowest Since Lehman, Fed's Favorite Inflation Signal Near 40-Year Highs

Both income and spending were expected to rise in April (with Americans spending more than they earn once again - as we already have seen hints of from the record surge in credit card use)...

...And as expected spending soared (+0.9% MoM vs +0.8% exp) while incomes grew only modestly (+0.4% MoM vs +0.5% exp)...

Source: Bloomberg

This is the 7th straight month of rising incomes.

On the income side of the equation, Private workers wages rose 12.7% YoY, slowing from 14.0% YoY in March, while Government workers' wages rose 5.6% YoY, down only modestly from 5.7% YoY in March

On a YoY basis, incomes bounced back into the green (+2.6% YoY) due to the low basis, but spending growth slowed to +9.2% YoY...

Source: Bloomberg

All of which means the savings rate collapsed to just 4.4%, its lowest level since Sept 2008 (Lehman!!)

Source: Bloomberg

Real personal spending picked up once again...

Source: Bloomberg

Finally, the most important aspect of today's report is The Fed's favorite inflation indicator - The PCE Deflator - which was expected to slow in April. The headline print came in hotter than expected at +6.3% YoY (vs +6.2% exp and below the prior +6.6% print). Core PCE came in at +4.9% as expected, slower than the +5.2% YoY in March...

Source: Bloomberg

PCE breaks down as follows: Food prices accelerated along with housing as gasoline ticked down modestly in April (which will only be temporary as gas prices have exploded higher in May)...

These levels of inflation are still at 40 year highs, so don't get too excited by the second derivative.. and the rates market hasn't budge on the print.