Consumer spending was unchanged in April, the US Bureau of Economic Analysis reports, but income delivered a better-than-expected rise. There’s also upbeat news for private-sector wages for April, which posted moderately stronger growth–growth that translates into a faster year-over-year gain. The firmer numbers on wages, the primary source of personal income, implies that the recent softness in consumption is self-imposed rather than the blowback from a slump in household earnings. The upward trend in the income ledger is still modest, but it provides another clue for arguing that the US economy isn’t in danger of sliding into a new recession.
Consider how the rolling one-year change for income compares with today’s udpated April figures. Note the pop in private-sector wages (green line), which increased 5.1% in annual terms. That’s more or less average, based on the past 12 months. More importantly, today’s release suggests that wage growth—the foundation for household income—remains stable.
Five-percent-plus annual increases for wages isn’t particularly impressive, but for the moment it offers support for thinking that the US economy isn’t in danger of dipping into a contractionary phase. If recession risk was rising, it’s likely that we’d see a clearer run of decelerating wage growth. But that’s not obvious when we look at the numbers to date.
The next chart shows the rolling one-year changes for private sector wages in the 12 months leading up to the last three recessions vs. the current data through April 2015 (red line). The worst you can say about the latest figures is that the growth rate is modest vs. history. But that hardly comes as a shock at this late date. The good news for now is that wages continue to rise at a relatively stable if modest rate.
The question is whether the same narrative applies to the labor market? If this Friday’s update on payrolls for May repeats the story in the last batch of numbers—i.e., a monthly gain above 200,000, as the crowd expects (based on Econoday.com’s consensus forecast)—the case for arguing that the US is slipping into a recession will continue to fade.
To be fair, a self-imposed cut in consumer spending could trigger a recession. But is it likely that the crowd will engage in an extended run of saving more (and spending less)? If that happens, a recession is certainly possible, perhaps likely. But with income still trending higher, history suggests that Joe Sixpack’s profligate habits will soon return.