Yesterday we catered to vertical line enthusiasts in framing the contextualization around growth in the April Durable and Capital Goods data (See: Durable Goods | Warm Cozies).
Today, we find Durable Goods incredulous as their reign atop the RoC hierarchy proved decidedly non-durable. This morning’s PCE data took the opportunity to look down smugly, seeing yesterday’s nosebleed growth formation and raising it a quantum of high-altitude K-shaped Luxury.
If you are afraid of heights, I encourage you not to look down (at the 1st chart below).
Monetary and expedited fiscal policy is a blunt instrument … and regardless of the starting material (problem to solve, policy aspiration, etc) that blunt instrument has a not so sneaking tendency to mastercraft it into asset price inflation and k-shaped distributions.
Anyhow, the temporal progression of the recovery remains largely straightforward here:
- Aggregate income declined sequentially as we comped the receipt of stimulus checks in March, but more notably …..
- Aggregate Private Sector Salary & Wage Income (from employment/payroll acceleration) accelerated to +19.4% Y/Y – easily the fastest pace of growth ever (chart below)
- The Savings Rate fell to 14.9% - down from the stimmy moonshot at 27.7% last month but holding well above the normalized/non-pandemic level of ~6%.
- Consumption was down -0.1% sequentially while accelerating to +24% Y/Y, but the signal lies in the internals ….
- Services Consumption was positive for a 2nd month (+0.6% M/M) while accelerating to +19.3% Y/Y. Durables Consumption was down sequentially and while it remains elevated we are seeing the progressive inoculation/reopening-catalyzed transition away from Goods consumption (less signal in the Retail Sales data) in the direction of Services. This will continue as the Goods economy in 1Q remains your template for the Services economy in 2H.
- Summarily: Remember how this is going to play out .... Organic Consumption Capacity will increase alongside large-scale payroll gains and acceleration in aggregate wage income. More of that rising income will get spent as the Savings Rate renormalizes. And that aggregate consumption capacity will get juiced further as the $2.4T wall of excess savings gets deployed into commerce and activity.
