Americans earned more and spent more in February, raising hopes that the economy is rebounding after an unusually severe winter.
Both income and spending increased 0.3% last month from January, the Commerce Department said. The increase in spending was the largest since November of last year.
February began to show signs of the economy getting back on track after a harsh winter.
“In February we saw a more normal income report consistent with what we could call a moderate growth economy at best,” said Robert Dye, chief economist at Comerica Bank.
Improved weather isn’t the only reason incomes and spending rose. More people signing up for health insurance under the Affordable Care Act also contributed to the uptick.
Expanded coverage under the law has increased Medicaid benefits as well as government subsidies, leading more people to spend on healthcare services.
“Individuals who have been given government subsidies are now spending on healthcare,” said Joseph Brusuelas, senior economist at Bloomberg LP.
While spending on durable goods such as cars decreased, spending on services continued to increase in February after a large increase in January.
Some of these increases came from continued spending on utilities as Americans heated their homes through the end of winter, but others had warmer weather in mind. With spring approaching, people began planning their spring getaways after a long winter stuck inside.
Ashley Lucot, 22, is a substitute teacher in Pittsburgh, Pa. In February she booked her flight and reserved her hotel room for her spring break at the end of March to Boca Raton, Fla.
“I’ll be spending even more once I get there on food, drinks, and shopping,” she said.
Increases in services spending were partly offset by the expiration of the Emergency Unemployment Compensation program that reduced unemployment benefits, the Commerce Department said. Although January was the first full month where more than one million long-term unemployed went without jobless benefits, the impact was still seen in February.
“Because of government policy, long-term unemployment benefits have been rolled back. The last couple months of the income report have reflected changes not only due to the weather but also because of the expiration of these unemployment benefits,” said Dye.
Those with jobs fared better in February. Wages and salaries, which account for about 50% of personal income, increased again in February after an increase in January.
But the price index for personal consumption expenditures, the Federal Reserve’s measure of inflation, wasn’t encouraging. It increased by only 0.1% in February, the same increase as in January, the Commerce Department said.
The central bank is still well below it’s ultimate target of 2% inflation, but Brusuelas said the Fed shouldn’t be too concerned since inflation is still rising, albeit slowly.
“We don’t quite have deflation, we just have low inflation. I’d say we’re coming out of a disinflation period with inflation rising at very low levels,” he said.
Eugenio Aleman, senior economist at Wells Fargo Securities, said it’s going to take time to get to the inflation rate the Fed wants to see.
“They are preparing to come back to normalcy at some point in time, but they still have a long way to go,” he said.
Even with the less than stellar inflation rate, Aleman said he has a positive outlook for the economy’s growth in the coming months. He’s predicting that the jobs report that comes out next Friday will say 200,000 jobs were added in March, up from the 175,000 added in February.
Dye shares a similar sentiment. “March and April will improve along with the weather. I am expecting to see a broad improvement as we get into the spring,” he said.
