United States | Strong economy in April, break in rate hikes recedes

(Washington) Inflation accelerating again, consumption up, investment stronger than expected: The US economy was much stronger than expected in April, reducing the likelihood of the Fed pausing its rate hikes. rate.

The US central bank has been raising its key rates since March 2022, which are now within a range of 5.00 to 5.25%. This leads banks to raise the cost of the loans they offer to households and businesses, in order to ease the pressure on prices, but at the risk of seizing up activity.

“(Household) income increased as expected in April. But consumption rose more than expected and inflation moved in the wrong direction to start the second quarter,” said Rubeela Farooqi, chief economist for HFE.

After several months of slowdown, inflation has started to rise again, according to the PCE index, which the American central bank (Fed) favors and which it wants to reduce to 2%.

We are still far from it: over one year it climbed in April to 4.4%, against 4.2% in March, the Commerce Department announced on Friday. And in just one month, it reached 0.4%, compared to 0.1% the previous month. This is higher than the 0.3% that was expected by analysts, according to MarketWatch consensus.

In detail, the prices of services increased more than those of goods. And, while the rise in food prices remained almost stable, those of energy, on the other hand, started to rise again sharply.

Another negative signal, so-called core inflation, excluding food and energy prices, is also accelerating, to 0.4% over one month and 4.7% over one year. This data is particularly observed by the Fed.

The Commerce Department also reported that U.S. household income rose 0.4% from 0.3% in March. As for spending, it rebounded strongly: 0.8% against 0.1% the previous month.

“The rebound in spending will not be sustained”, because “stimulated in large part by an increase in vehicle sales”, however, qualifies economist Ian Shepherdson, of Pantheon Macroeconomics.

He anticipates that “consumption will not be strong enough to offset the effects of lower capital expenditures, continued inventory declines and […] a net foreign trade impact”, and thus expects a decline modest gross domestic product (GDP) in the second quarter.

Orders for durable goods – expected to be used for three years or more, such as household appliances or manufacturing machinery – however also continued to rise in April, for the second month in a row, beating market expectations. through transport equipment.

According to Rubeela Farooqi, “without an easing of labor market conditions and a stronger release of price pressures, the risk is that Fed officials will choose to raise rates further.”

Institution officials are divided on whether to raise again to curb persistent inflation, or pause to observe the effects of previous hikes and avoid recession.

Another measure of inflation exists, the CPI index, which is used in particular to calculate pensions. In April, it slowed year on year, to 4.9%, but accelerated over a month, to 0.4%.

US GDP growth slowed in the first quarter to 1.3% annualized.