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.
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Comments:
Aug '11
Re: Consumer Spending Higher in February
How about "people started getting their tax returns," and that gave them a little bit more (temporary) spending power.
Maybe it's that easy!
Edited on March 30, 2012 at 4:04pmDec '10
Re: Consumer Spending Higher in February
Um - I believe they're missing a key point here: Inflation. Consumers are spending more for the same stuff. So this is in no way good news.
Apr '11
Re: Consumer Spending Higher in February
Do the stats not adjust for inflation?
Dec '10
Re: Consumer Spending Higher in February
wmartin
Do the stats not adjust for inflation? · 27 minutes ago
I'm not an authority on all of the gyrations they go through to come up with the numbers. I do know that the official inflation rate itself is skewed by the fact that they include house prices - thereby artificially holding the rate down.
I suppose most of my point is anecdotal - damn right I'm spending more. More to fill up the gas tank, more to buy the same groceries, more to buy the same household necessities. But I'm not buy more stuff - I'm buying less or lower quality stuff.
Mar '11
Re: Consumer Spending Higher in February
Monthly payroll figures better the last 3-4 months; real incomes deteriorating over the very same time frame. Somebody please square that circle for me.
May '10
Re: Consumer Spending Higher in February
That's inflation. It means that inflation (aka gas prices) is increasing faster than incomes. Thus the uptick in spending is coming from savings.
Mar '11
Re: Consumer Spending Higher in February
Some expenses cannot be deferred. Food and energy costs are rising yet incomes are not rising to match, personal savings are being bled to make up the difference. This is neither confidence nor sustainable growth.
Mar '11
Re: Consumer Spending Higher in February
Trace Urdan
That's inflation. It means that inflation (aka gas prices) is increasing faster than incomes. Thus the uptick in spending is coming from savings. · 5 hours ago
Ah I see you beat me to it.
Mar '11
Re: Consumer Spending Higher in February
Yeah, that's what happens when you print money.
And, no doubt Mr Obama will claim credit for it.
Mar '11
Re: Consumer Spending Higher in February
Spending growth supported by a drawdown in savings: Unsustainable. Real disposable personal income per capita flat/down for two years and stuck at 2006 levels. Worst. Recovery. Ever. But hey, we've got Obamacare! Oh... Wait...
Re: Consumer Spending Higher in February
You can only defer some expenses for a while.
Jun '10
Re: Consumer Spending Higher in February
January and february, tax refunds. Spending will grind to a halt in March and April. Tax payments
Mar '11
Re: Consumer Spending Higher in February
Tuscon, the numbers are seasonally adjusted. It wouldn't be tax payments. Really what I was trying to get at in post #5 above was the odd fact of falling real incomes at precisely the same time as a pickup in the pace of job growth.Possible explanation: a disproportionate share of new jobs are low-wage....
Mar '11
Re: Consumer Spending Higher in February
Paul what I want to suggest here is that consumer spending can't sustainably grow without sustainably growing incomes. In the short term borrowing and a drawdown of savings will suffice but that fails the sustainability test. If real incomes don't grow ultimately the economy doesn't grow and real disposable personal income gas been flat for two years now.
Nov '11
Re: Consumer Spending Higher in February
Despite inflation and all the other implications (esp. deferred expenses), all I can say to the title is the personal reaction of YAY! Go ahead and buy that luxury item (ours). We try to capitalize on tax return season, too. Wouldn't it be nice just to be happy about it?