MNI DATA PREVIEW: US April Core PCE Prices Seen Up 0.2%

By Kevin Kastner

     WASHINGTON (MNI) - The personal income and consumption report for April

will be released on Friday and is expected to show faster growth rates for

income and core prices, but a significant slowdown in nominal PCE to start the

second quarter.

     The median forecast in an MNI survey see personal income rising by 0.3%

after a 0.1% gain in March, while nominal PCE is expected to rise by only 0.2%

after a 0.9% surge in the previous month. The core PCE price index is expected

to accelerate modestly to a 0.2% gain. The Bloomberg forecasts are the same for

income and core PCE prices, but see a 0.3% gain for nominal PCE.

     Ahead of the release, we outline important themes for particular attention:

     - The expected 0.2% gain in core PCE prices would follow more modest gains

in recent months, but would still leave the year/year rate at 1.6%, the slowest

since January 2018. The Federal Reserve remains concerned about slowing

inflation, with markets paying particular notice to three straight declines in

the y/y core PCE price measures.

     - The health care measures in the PPI and CPI reports suggest that PCE

inflation could be stronger than anticipated, while the PCE measures released

with PPI were weaker. Like those two reports, though, core PCE prices rarely

produce a significant surprise, so the closely-watched Y/Y rate is unlikely to

be altered drastically.

     - Private payrolls rose by 236,000 in April, significantly stronger than

the 179,000 increase in March. At the same time, hourly earnings rose by 0.2% in

April for a second straight month. A small decline in average hours worked

provides some downside risk, but the combination of a larger workforce and

rising hourly earnings should be enough to lift the wages and salaries portion

of personal income, though perhaps less than the 0.4% gain 

     - Personal income growth in March was held back sharp declines in other

income components that offset the wage gain. The reverse is likely to occur in

April, with return on assets in particular likely to add to personal income due

to a stronger stock market.

     - Retail sales pulled back in April after a very strong gain in March, with

even the control group measures disappointing. As a result, the rate of nominal

PCE growth should slow dramatically from the 0.9% gain in the previous month.

     - The combination of a slower PCE growth pace and slightly faster inflation

growth should leave real PCE growth roughly flat. Assuming a minor upward

revision to March PCE, as suggested by an upward adjustment to the retail data

that month, real PCE growth should remain moderately ahead of the first

quarter's pace, but slower than in previous quarters.

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com

[TOPICS: MAUPR$,M$U$$$]