[ForexNews]

Personal income rose 0.5% in April, well above consensus expectations for a 0.2% decline, while personal spending fell 0.1%, also above consensus expectations for a 0.2% drop. The rise in income was related to higher transfer payments as well as a one-off adjustment from lower bonus payments in 1Q09, while the fall in spending gets consumption off to a weak start in 2Q09. The report also showed another firm core inflation reading.

The 0.5% rise in personal income reflected a 2.3% rise in transfer income that was associated with a provision of the stimulus legislation that increased unemployment benefits by $25 per week, as well as a flat reading on wage and salary income that was well above the recent trend of significant declines. The Bureau of Economic Analysis had reduced wage and salary income by an annualized $20bn in January, February, and March to reflect smaller-than-usual bonus payments, and this adjustment was not carried forward into April. Real disposable income surged 1.1% in April, reflecting the rise in pretax income combined with a 5.1% drop in taxes that was mainly by the Making Work Pay Credit, which caused employers to reduce withholding taxes significantly. Real consumer spending fell 0.1% in April, and the March change was revised to -0.3% from -0.2%; this starts off the quarter on a weak note, and there will need to be gains in May and June to reach our 2Q09 forecast of 0.0%. As a result of the sharp rise in income and the decline in consumption, the personal saving rate rose to 5.7% in April, up from 4.5% in March.

The overall PCE price index was up 0.1% in April, and was up 0.4% y/y compared with 0.6% in March. The core PCE price index rose 0.3% (0.262% unrounded), and was up 1.9% y/y, up from 1.8% in March.