By Zameena Mejia
The U.S. economy started the year off with strong numbers empowering American consumers, but what does February’s softer growth in personal income and consumer spending mean for them?
While personal income growth slightly surpassed expectations, weak gains in spending matched economists’ predictions as seen the Commerce Department reported on Monday. Personal income increased 0.2 percent in February, slumping down to the slowest growth experienced since September 2015. Wages and salaries experienced a 0.1 percent decrease.
Spending in February remained flat at 0.1 percent as January’s originally-reported 0.5 percent gain was revised down to 0.1 percent.
Much of the downward trends are revisions reflecting seasonal adjustments, which economists are accustomed to at this time of year and thus are not too worried about noisy numbers.
The continued falling price of gasoline contributed to the decrease in headline spending figures. Pulling back from the gasoline price decline, spending is at three-tenths of a percent which is moderate, not too strong and not especially weak either, according to Scott Brown, chief economist at Raymond James Financial Inc.
“A lot of anecdotal evidence suggests consumers in general are going to pretty much spend just about everything that they make, so they’re spending less money to fill up their gasoline tank and they’re going to have more money to spend on other things,” Brown said. “They’ve got the wage income growth which is has been on a pretty good trend, but I don’t see them as being overly cautious at this point.”
The Labor Department’s headline 242,000-payroll rise for February was better than expected and eased concerns that global economic weakness and market turbulence would derail the seven-year-old economic recovery. Brown says there is a key concern with whether Americans will talk themselves into a recession, especially with the savings rate increasing.
“It’s a bit of a puzzle why people aren’t feeling better about the recovery because we have had pretty good jobs growth over the last couple years,” Brown said. “The job market has improved and wages have been relatively lackluster over the wage growth but that should pick up over time.”
Sales on durable goods and services—with larger purchases like motor vehicles and parts accounting for about half of this spending increase—grew faster than nondurable goods—like boots and jackets—decreased.
In line with losses in American wages and salaries, the savings rate increased to 5.4 percent. This surpasses January’s percentage and reaches its highest point since February of last year, which was last preceded by an economy saving at its highest rate since December 2012.
Ivanna Tellez is a 22-year-old graduate student at The John Marshall Law School who constantly travels between New York City and Chicago. Tellez is one of many Americans who has been cautious in choosing the right time to spend her savings. She said she has anxiously waited to buy a new car so she can get the best deal on the right vehicle, hopeful of a slightly improving economy to help her take that step. Tellez living between cities would mean paying taxes twofold on one car. Even worse so is the lack of security she feels buying a vehicle in a city where crime is high because taxes are high and people feel gamed by the economy.
“The local economy is bad but I need a car that fits my lifestyle,” Tellez said. “Basically as a new buyer, there are so many costs that you have to look at. It’s not just saving for it but also to upkeep it.”
Tellez said she hopes to be driving her own car by May or June.
“It’s my first car and i want to buy it with my money—not my parent’s because I’m independent and I don’t need their support, so I’m waiting for the right car.”
Louis Crandall, chief economist at research firm Wrightson ICAP, suggests looking at other measures like consumer confidence to determine whether income and spending numbers are indicative of a general weakening trend in household spending.
“That downtick may persist in the data for another month or two but in terms of what it means with the medium-term outlook the fundamentals still look solid,” Crandall said.
The report showed inflation increasing 1.0 percent in February from a year earlier; the “core” index, which excludes volatile food and energy prices, rose 1.7 percent. The Federal Reserve uses this price index as one measure of inflation due to it covering a wide range of household spending. At this rate, the economy is still looming under the Fed’s ideal rate of inflation, possibly further prolonging an interest rate-increase until later this year.
