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First Cut: Personal income jumps in April on government transfers while wages and salaries decline

Personal income rose 10.5% in April after declining 2.2% in March. However, wages and salaries were down 8.0%, accelerating the 3.5% decrease in the prior month. Instead, it was a near doubling of payments of government social benefits that drove the sharp rise.

Overall social benefit payments jumped 91.1% to $6.291 billion with a 518.0% rise in unemployment benefits to $0.430 billion and a 491.0% jump in “other” benefits to $3.122 billion. The latter is likely related to things like the Pandemic Unemployment Assistance program. The massive rise in government payments in a few categories is a short-term factor. While unemployment insurance benefits are going to continue for a while at elevated levels, the month-over-month rise will be far less in the May numbers as some workers move off the rolls. While there may be increases in pandemic assistance programs going into May as access and applications were on the rise, the burst of payments should be less.

Personal consumption expenditures were down 13.6% in April, speeding up from the down 6.9% in March. Spending was lower across all categories in April whereas in March consumers were buying up nondurable goods in reaction to concerns about supplies during the pandemic.

The savings rate more than doubled to 33.0% in April from 12.7% in March and indicated that money normally spent was being hoarded against future hardship, and any lump sums like tax refunds and Economic Impact Payments (EIP) were going directly to the bank and staying there.

The PCE deflator was up 0.8% year-over-year in April and reflected the continued declines in energy costs that was following petroleum prices down. The PCE deflator excluding food and energy was up 1.3%, a less concerning deceleration in upward price pressures for the FOMC. Disruptions related to the COVID-19 pandemic have caused some atypical movements in prices and made it harder to accurately discern the underlying trend. Fed policymakers have indicated that they think disflationary conditions are behind prices right now that will make it more difficult and take longer to get back to the 2% inflation goal over the medium term.

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