U.S. consumer spending was flat in March. What does it imply for the gold market?

Personal consumption expenditures were unchanged in March, marking the second month of stagnation (after a downward revision from the previous 0.1-percent rise in February). The result is below consensus. On an annual basis, consumer spending rose 4.7 percent, slightly less than in the previous month, as one can see in the chart below. However, the pace of real personal consumption expenditures growth increased from 2.5 to 2.8 percent. It signals that the stagnation in personal outlays could be caused by lower oil and motor vehicles prices.

Chart 1: Nominal personal consumption expenditures (blue line) and real personal consumption expenditures (red line) from 2012 to 2017 (as percent change from year ago).

But soft consumer spending does not bode well for economic growth. Indeed, consumption growth was only 0.3 percent in the first quarter of 2017, the worst showing since no change in the fourth quarter of 2009. And the real GDP increased only 0.7 percent in Q1 2017 on annualized basis, lower than the 1.1-percent forecast. The slowdown in economic growth – if persistent – would be positive for the gold market.

The income side of the report was also disappointing, as personal income increased only 0.2 percent in March, following a 0.3 percent increase in the previous month (after revision). The rise in income was also below expectations. Importantly, the wages and salaries component rose only 0.1 percent. However, personal incomes seem solid on an annual basis, as one can see in the chart below.

Chart 2: Nominal personal income (blue line) and real disposable personal income (red line) over the last 5 years (as percent change from year ago).

The PCE price index declined 0.2 percent in March, after a 0.1-percent increase in the previous month, while its core version dropped 0.1 percent, after a 0.2-percent rise in February. On an annual basis, the core PCE price index excluding food and energy prices rose 1.6 percent, while the overall PCE price index jumped 1.8 percent. It means that inflation retreated from its five-year peak hit in February, as one can see in the chart below. Therefore, the weakened inflationary pressures could ease some pressure on the Fed to raise interest rates.