US DATA: PCE: Solid Income Growth Overshadowed By Tariff Impacts
March's Personal Income and Outlays report showed a strong partly tariff-related pickup in real consumption in March that couldn't offset a weaker quarter as a whole. That said, personal income dynamics were fairly robust at quarter-end, suggesting that despite collapsing sentiment, there is still scope for consumer demand to remain underpinned heading into Q2. The least we can say is that if there is a recession looming, it did not start in March based on these data.
- The Q1 advance GDP report out earlier in the session already showed the slowdown in real spending in goods (0.5% 3M/3M annualized in March, slowest since April 2024) and services (2.4%, slowest since October 2023).
- However, both categories actually accelerated on a monthly basis in March, particularly goods which jumped to 1.3% M/M from 0.4% for the fastest pace since January 2023 (up from 0.4% in Feb), with services spending up from flat in Feb to +0.4% (joint-best on an unrounded basis since November 2023). Durable goods led gains (3.2% M/M after 0.5% prior, with nondurables 0.4% nominal 0.4%), in turn led by motor vehicles and parts purchases (+10.4%) - a clear sign of tariff front-running.
- The real goods figures were boosted vs the nominal gains by deflation across both durables (-0.1% M/M) and nondurables (-0.7%).
- Overall, the Q1 weakness was due to poor performances in January and February (March merely brought spending back to December 2024 levels). To put this into perspective: real spending was +1.8% Q/Q in Q1, and if the next two months come in at zero growth M/M, May's quarterly real spending growth rate will be 2.8% as Jan and Feb drop out.
- Of course as March's real vs nominal readings suggest, the big question will be how quickly and by what magnitude tariffs feed through into prices, particularly for goods.
- In the meantime, real disposable income was solid, rising by 0.5% M/M in March (0.4% prior), a 14-month best, and boosting the 3M/3M annual rate to 2.7%, an 11-month high. Nominal disposable income growth actually slowed, but as noted elsewhere inflation was benign vs Feb.
- Nominal income growth slowed to 0.5% M/M (0.7% prior), despite a pickup in employee compensation (0.5% from 0.4% prior, a 4-month best), with personal current transfer receipts pulling back to -0.3% M/M from +2.1% prior. Ex-transfer receipts, real personal income rose 0.7%, up from 0.0% prior.
- As usual we take great caution with the household savings ratio, which dipped to 3.9% in March from 4.1% prior - but the prior figure was revised down substantially from 4.6% prior, in keeping with the volatility in this series. The prior 6-month average is 3.8% so while this has fallen from 2023-24 levels, it appears to have stabilized.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
US DATA: Uncertainty (And Prices) Still Rising In Texas Manufacturing Sector
The Dallas Fed's Texas Manufacturing Outlook Survey for March was mixed, with sentiment worsening but current activity seemingly solid. As with the other regional Fed manufacturing surveys for March, readings have retreated sharply from the post-November election highs as uncertainty over tariffs and the demand outlook in general have set in, while inflation looks to be picking up sharply.
- The most closely-watched indicator in the Dallas Fed survey, the general business activity index, unexpectedly retreated further to an 8-month low -16.3, (-5.0 expected, -8.3 prior). However the Dallas Fed highlights that the production index rose 15 points to 6.0, effectively meaning factory activity rose in March after falling in February.
- This divergence potentially reflects activity front-running tariffs even as the outlook deteriorates.
- New orders ticked 3.6 points higher to -0.1, well below the January multi-year high of 7.7 but appearing to be off the lows.
- The outlook for production six months ahead dipped 0.7pp to 27.6, a fresh 10-month low but essentially steady after plummeting 16.5 points in February.
- And "outlook uncertainty" rose 7 points to 36.2, highest since Oct 2022.
- Worryingly from an inflation perspective, prices paid hit a fresh high 37.7 (up 2.7 points, highest since mid-2022), with prices received dipping slightly to 6.3. While expected prices paid/received pulled back slightly, these were off 2022 highs and remain elevated on a historical basis.
EU-RUSSIA: G5 Plus: Willing To Put More Pressure On Russia, Inc. New Sanctions
A meeting of foreign ministers from the so-called 'G5+' group (France, Germany, Italy, Poland, UK, Spain and the EU, more commonly known as the Weimar+ group) has taken place in the Spanish capital, Madrid. The post-meeting comments have sought to maintain a hard-line stance against Russia and in support of Kyiv, but it remains to be seen whether these European countries will have any notable impact on the future of peace talks given the US' preference for direct conversations with Russia. G5 Plus: "We are willing to exert more pressure on Russia, including new sanctions."
- G5+: "Russian assets must remain frozen until Russia and the war [and] compensates Ukraine." Spanish Foreign Minister Jose Manuel Albares called for the use of frozen Russian assets held in the EU to assist Ukraine, saying, “Russia will have to pay war reparations to Ukraine at some point. This could be seen as an advance on those reparations,”
- The use of hundreds of billions of euros in frozen Russian assets held by Euroclear in Belgium has been discussed since the full-scale invasion of Ukraine began. However, there remains significant reluctance from some to seize them, claiming it would set a precedent that risks European assets held in potentially non-friendly countries, as well as damage Europe's image as a reliable destination for investment.
- G5+: "We will not accept any peace deal that limits Ukraine's defensive capacity [or] Ukraine's partners' presence in its territory."
FOREX: Greenback Edges Higher, AUD and NZD Extend Declines
- Despite the initial USD Index weakness from the open, weighed by the aggressive move lower for USDJPY, the DXY has been edging steadily higher through European trade and into the US session. This has culminated in USDJPY reversing the entirety of the overnight move lower, with the pair now trading unchanged on the session at 149.85.
- The broad dollar strength has worsened the intra-day performance for AUD and NZD, which remain comfortably the weakest in G10. Both currencies have remained unfazed from the latest bounce for major US equity indices, as the e-mini- S&P 500 rises roughly one percent off the lows.
- For AUDUSD, we continue to narrow the gap to a key short-term support at 0.6187, the Mar 4 low. Importantly, clearance of this level would reinstate a bearish technical theme for the pair.
- Downside momentum picked up for NZDUSD on a break of a cluster of lows around 0.5710, and the intra-day fall now totals 1.10%. 0.5600 remains a key psychological pivot for the pair, while the medium-term target for the move remains at 0.5512.
