Personal income rose a solid 0.4% in March but spending rose a weaker than expected 0.1%.
Durable goods spending plunged 0.6% again, matching January’s decline. Autos are the key component.
Spending on services rose an exceptionally weak 0.1%.
BEA Monthly Data
BEA Quarterly Data
For the quarter, BEA Data shows wages are up 3.9% but spending on goods declined 4.0%.
Spending on services clearly led the way, up 5.2%, with overall personal consumption expenditures (PCE) up 2.1%.
The quarterly numbers put a spotlight on just how weak services suddenly became.
Bloomberg Econoday
The Bloomberg Econoday consensus was +0.3% on the income side and 0.2% on the spending side.
Highlights
Spending is weak but income is solid. These are the latest results, and also the trends, for personal spending and income.
Spending, which is being pulled down this year by weak car sales, rose only 0.1 percent in March, even weaker than the 0.2 percent gains in February and January. Spending on durables, which includes vehicles, fell 0.6 percent in March to match the same size plunge in January (February was up a negligible 0.1 percent). Spending on non-durables, though rising in the month, showed net weakness in the quarter tied largely to what is a positive for the consumer, lower fuel prices. Spending on services is a clear weakness in the report, up an unusually low 0.1 percent in the month.
The income side looks positive throughout, up 0.4 percent in March following gains of 0.1 and 0.4 percent in the first two months of the year. The wages & salaries component rose a very solid 0.4 percent in the month while the savings rate rose 3 tenths to 5.4 percent. This matches the highest rate of the last three years.
The gain for wages is not boosting inflation, at least yet. Price data are soft with the core PCE up only 0.1 percent in the month and only 1.6 percent year-on-year which is 1 tenth lower than February and further away from the Fed’s 2 percent goal.
Consumer income is an important positive for the economic outlook, offsetting weakness in spending and stubbornly low inflation. Though the gain for wages does hint at emerging pressures, this report doesn’t turn up the heat for a June rate hike.
Recent History
This report in February was the shock of the quarter, as personal spending inched up only fractionally and a big gain in January was revised almost completely away. And, despite another likely uptick on service spending, not much more is expected with the Econoday consensus at plus 0.2 percent, held down especially by weak vehicle sales. Personal income, which only edged up in February, is expected to rise a solid 0.3 percent in March. This report also tracks the Federal Reserve’s central policy rate for inflation, the core PCE price index which held unchanged at 1.7 percent in February. Forecasters see the index inching only 0.1 percent higher in March which would likely pull down the year-on-year rate to 1.5 percent and further away from the Federal Reserve’s 2.0 percent target.
Spending on services did not rise as expected. In fact, consumers outright threw in the towel on all spending, despite rising gasoline prices and despite solid wage growth.
The Fed will be disappointed that the PCE price index only rose 0.1% month-over-month and 0.8% year-over-year. The “core” PCE price index (excluding food and energy as if those don’t matter), rose 0.1% month-over-month and 1.6% year-over-year.
The bottom line is consumers are saving, not spending, income growth.
Mike “Mish” Shedlock
