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US Consumer Increasingly Reliant on Credit as Spending Beats, Income Misses

US Consumer Increasingly Reliant on Credit as Spending Beats, Income Misses

2013-04-10 13:10:00
Christopher Vecchio, CFA, Senior Strategist
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THE TAKEAWAY: USD Personal Income (APR) > +0.2% versus +0.4% expected, from +1.1% (m/m) > Personal Spending (APR) > +0.2% versus 0.0% expected, from +0.7% (m/m) > USDJPY BEARISH

Consumer data released on Friday alongside the US 1Q’13 GDP report showed that the US consumer was starting to look weaker. The savings rate fell to 2.6% from 4.7% in the 4Q’12, while real disposable income dropped by -5.3% in the reporting period. Additional US consumer data released today more or less confirmed the new trend that is emerging.

Personal Income only rose by +0.2% m/m in April, half of the forecasted +0.4% m/m rise, according to a Bloomberg News survey. The overall rise was less than one-fifth of the prior month, underscoring how the payroll tax increase at the beginning of the year alongside the budget sequestration in March are having an impact on the way business is being conducted in the world’s largest economy.

The other data point which really underscores the new trend that’s emerging was the Personal Spending figure for April, which showed an uptick of +0.2% versus a flat reading expected, down from +0.7% m/m in March. We see here that the rate of income generation is slowing while the rate of spending is beyond expected; and in context of the plunge in the US savings rate in the 1Q’13, it seems that, once again, consumption is heavily reliant on credit use. As times in the past have showed us, especially over the past five to six years, economic growth hinging on credit growth is very shallow and tends to foreshadow forthcoming weakness.

USDJPY 1-minute Chart: April 29, 2013

US_Consumer_Increasingly_Reliant_on_Credit_as_Spending_Beats_Income_Misses_body_Picture_1.png, US Consumer Increasingly Reliant on Credit as Spending Beats, Income Misses

Charts Created using Marketscopeprepared by Christopher Vecchio

Following the release, the USDJPY – perhaps the most sensitive major pair to shifts in US Treasuries yields – slipped from a near-session open of 97.78 to as low as 97.61 following the release. Investors clearly did not like the mixed bag of data, as it feeds into the notion that the US economy will weaken in the spring. However, in the thirty minutes following the release, the USDJPY had recovered back to 97.75, as it appeared the data would spur a general recovery across all USD-pairs soon after the initial reaction.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

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