Consumer Spending Higher in February
Capital Economics reports that stronger-than-expected GDP growth is likely in the first quarter, but that this is solely a result of consumers saving less. Better employment figures should generate stronger Q2 income, but initially that income will likely be used to replenish savings:
February’s US personal income and spending figures suggest that GDP growth in the first quarter will be a bit stronger than previously looked likely. But it is a little worrying that, as real incomes are still falling, faster real consumption growth is due to households reducing their savings.
The 0.8% m/m rise in nominal personal spending in February was better than the consensus forecast of a 0.6% gain. What’s more, the 0.5% m/m rise inrealspending was the largest since September. Together with some small upward revisions to real spending in both January and February, even a 0.2% m/m rise in March would generate annualised real consumption growth of 2.4% in the first quarter as a whole. That would be better than the fourth quarter’s 2.1% and the 1.5-2.0% first-quarter gain that previously looked likely. As such, first-quarter GDP growth may now be around 2.5%, compared with the 2.0% that had looked plausible.
The one concern, however, is that stronger real spending in February was purely the result of households reducing their saving rate to 3.7%. That’s the lowest since August 2009 and was down from 4.3% in January. Nominal incomes rose by just 0.2% m/m, as wages and salaries were up by only 0.3% m/m. Real disposable incomes fell by 0.1% m/m, which was the third decline in four months. At some point, the recent employment gains will translate into faster income growth. But households will presumably use this to replenish their savings before boosting consumption growth.
So are consumers just tired of deferring expenses? Or is this the first sign of growing consumer confidence in relation to the reports of a better employment outlook. If it's the latter, it could suggest a real turning point in the national mood that could, in turn, improve the President's outlook for re-election.