Inflation Surge and Stagnant Incomes Threaten Consumer Spending Engine
Consumer spending rose just 0.1% in April after adjusting for inflation, while the personal consumption expenditures price index climbed 3.8% year-over-year, the highest since 2023, according to the Bureau of Economic Analysis. Core PCE, which excludes food and energy, increased 3.3% annually. Personal income remained flat for the month, and inflation-adjusted disposable income fell 0.5%, marking the third consecutive monthly decline. The personal saving rate dropped to 2.6%, the lowest level since 2022.
War-driven energy costs drove much of the price acceleration, with Brent crude futures still more than 30% higher than pre-conflict levels despite recent declines. Walmart CFO John David Rainey reported that low-income consumers are increasingly budget-conscious and facing financial distress, while high-income shoppers continue spending confidently. Inflation-adjusted spending on core goods fell 0.2% in April. Computer software and accessory prices rose 5%, a category economists are monitoring closely as data center construction drives costs higher.
First-quarter GDP growth was revised down to 1.6% from an initial estimate of 2%, driven by weaker inventory investment and consumer spending. Corporate profits rose just 0.9% in the first quarter, a sharp deceleration from the prior quarter’s 6% gain. New Fed Chairman Kevin Warsh, sworn in May 22, faces pressure to determine whether rate hikes are necessary to control inflation expectations. The confluence of rising prices, stagnant wage growth, and depleted savings threatens the consumer spending that has sustained commercial real estate demand across retail, multifamily, and hospitality sectors.
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