New York City's Financial District

New York City’s Financial District (Photo:  Zameena Mejia)

By Zameena Mejia

The country’s economy showed its weakest performance in two years, as highlighted in 2016’s Gross Domestic Product first quarter report, released Thursday, April 28 by the Department of Commerce. Yet consumers were at the economy’s rescue with positive contributions. Due to its relatively late release, economists don’t expect much fresh data in March’s personal income and outlays report—scheduled for release on Friday, April 29 at 8:30 a.m.—but the Fed is surely keeping an eye out. Here are five things to watch in the report.

1. Subdued inflation
Despite a slowdown in the economy’s growth, Federal Reserve officials met on Wednesday to discuss the federal funds rate. They highlight a rise in real income as one of few major ways consumers have managed to boost the economy. The sustained 1.7 percent growth in the core personal consumption expenditure index in January and February have inflation looming close to the Fed’s ideal 2 percent rate of inflation. The Fed will continue to watch inflation indicators, especially its preferred inflation measure core PCE, to assess if it will adjust the federal funds rate at its next meeting in June, according to a release issued Wednesday.

Personal income and outlays provides the data, specifically the core PCE, as one measure of inflation due to its expansive coverage of household spending.

2. Strength in income
For the first two months of 2016, income growth hovered between 0.1 and 0.2 percent. While more Americans entered the workforce, more jobs were created in retail trade—like merchandise and garden supply stores—construction and health care, according to the Bureau of Labor Statistics’ March employment report. Employment gains and slight growth in average hourly earnings could contribute to a steady growth rate of 0.2 percent in personal income as estimated by a survey of Bloomberg economists.

“Consumers spending is falling behind personal income, I think consumers have got a boost from real disposable income and their lower oil prices but they are not rushing out to spend,” said David Sloan, senior economist at 4Cast Inc.

3. Less spending
Economists were disappointed in the March retail sales numbers given their role in in calculating consumer spending. Consumer spending has remained at a flat 0.1 percent since December 2015. Americans have also spent less money on utilities. Economists surveyed by Bloomberg have a median estimate of 0.2 percent growth in spending, While purchases of durable goods rose to 0.3 percent last month, this month’s durable goods report showed weak growth, according to the Commerce Department.

“The real question is, are consumers willing to spend their increased incomes?” said Sloan. “At the moment, consumers are fairly cautious I think they may be unconvinced that the falling oil prices are here to stay or there is uncertainty ahead of the elections.”

4. Signs of spring weather
We are officially in spring and Americans spent may be spending less money on heating their homes. Jim O’Sullivan, chief U.S. economist for High Frequency Economics, said there could be weaker spending because people are not only spending less on utilities, but they also don’t feel confident enough to loosen their grip on their money.

“It looks like utilities usage was down, which is a more a weather story than anything else, but it looks like that was a drag in March,” said O’Sullivan.

5. Even more saving
If the savings rate surpasses 5.4 percent continues to follow the upward trend the economy has seen over the past several months, it will be at its highest rate since 2012. A steadily increasing savings rate may also cause consumer confidence to decrease, which would be detrimental to to the consumer-driven economy.

“We had disappointing retail sales numbers in March, so we are definitely seeing savings picking up,” said Sloan.