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The Personal Income indicator, released by the government’s Bureau of Economic Analysis, comes out tomorrow, Friday April 26th. In it, there will be data about inflation and consumer spending, which could affect when the Federal Reserve cuts or raises interest rates. Here are five things to watch for:
1. Inflation Measure
The inflation data released tomorrow is likely to show that prices remain sticky and above the Fed’s target. Economists predict that the Personal Consumption Expenditures Headline Price Index will tick up to 2.6% in March 2024, up from the 2.5% rate reported in February.
Inflation as measured by headline PCE has been cooling since it reached its peak at over 7% in the summer of 2022. In February 2024, this figure was at 2.45%, a slight uptick from January’s 2.43% mark. January’s mark, which is almost identical to February’s, is the lowest yearly inflation rate since March 2021.
Economists predict a slight uptick in inflation in part because of a different inflation report (Consumer Price Index) that came out earlier this month. It showed that the inflation rate was stubborn in March, climbing up from a yearly rate of 3.2% to 3.5%.
2. Inflation data will influence when Fed cuts or raises rates
The inflation numbers coming out on Friday could impact the likelihood of the Fed raising or cutting interest rates. A higher inflation figure would discourage the Fed from cutting rates. The Fed closely monitors this data, as the headline PCE Price Index is the Fed’s preferred measure of inflation. Their target yearly inflation rate is 2%, well below last month’s 2.5% figure.
Between 2022 and 2023, the Fed raised interest rates above 5%, the highest they have been since the mid-2000’s. This makes it harder for Americans to borrow money and buy homes. The Fed hiked up interest rates in order to cool rampant inflation which peaked in 2022. If the inflation figure creeps up in March as economists are predicting, a Fed rate cut any time soon would seem even more unlikely.
3. Consumer Spending
The report tomorrow will also indicate how much consumers are spending through the Personal Consumption Expenditures measure. Last month, spending rose 0.8% month over month, the most growth since January 2023. As a whole, spending has been resilient, as evidenced by the GDP numbers that came out earlier today.
Economists forecast that spending will grow at a monthly rate of 0.7% in March, which would keep the trend of strong spending going. This elevated spending would put upward pressure on inflation, which would prevent prices from falling to the Fed’s 2% target.
4. Who is benefiting from the income numbers?
The Personal Income numbers will reveal how income is being distributed. In general, lower income families depend on income from wages and salaries, whereas higher income households also benefit from interest income and rental income. In the immediate aftermath of the pandemic, wages and salaries were growing faster than interest and rental income, benefiting lower income people. Fast forward to now, interest income and rental income have been outpacing wages and salaries, benefiting the wealthy. The numbers released tomorrow will help indicate how much of that remains true.
“Right after the height of the pandemic, we saw the income gap narrow,” said Christopher Low, chief economist at FHN Financial. “Now, we’re seeing it widen again through these income numbers.”
5. How much Americans are saving
Another important figure to watch is the savings rate, which is the percentage of people’s income left after they pay taxes and spend money. In February, the savings rate dipped to 3.6% from 4.1% the month prior, falling to its lowest level since December 2022.
Savings from COVID are dwindling as Americans continue to spend a lot. Friday’s report will tell us if this dip in savings nationwide persists.
