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Economy in Brief

US Consumer Spending Flounders in March but Trend Still Mostly Firm
by Robert Brusca April 30, 2007

The trend to spend took a hit in March but the quarter was still strong for the consumer, as we already say in the GDP report. Three-month trends show us that spending is cooling to a 2.2% pace led by a slowdown in nondurable goods where spending dropped to a -0.6% rate of growth. Spending on durable goods still rose a robust 3.5%. Services spending continued its mild acceleration with a three-month rate of growth of 3.3%. Consumer real disposable personal income backed off in the month to a pace of 2.6% (SAAR) compared to a year/year pace of 4.1% and a three- month growth rate that is still at 3.8%.

On balance, these trends are still good and we know that monthly income and spending are subject to some volatility. So monthly declines should be taken in that spirit.

The savings rate continues negative but the rate of decline in the saving rate has switched and although the rate itself is still negative, the savings rate is headed back toward zero and perhaps into positive territory. This trend may reflect less equity extraction on the part of consumers whose houses are losing value but there is no evidence that it is affecting the pace of spending.

If we adjusted the various income components for inflation, we see steady acceleration in all these groups except for nonfarm proprietors. Real income generation trends are on solid footing and that should underpin spending as we move ahead. This trend is more important to consumer spending trends that home values.

Spending trends for goods and service are still solid. Goods spending is decelerating after a very strong increase and while services spending has been more modest it is still mildly accelerating.

With the flat core PCE deflator this month, inflation is starting to return to the Fed’s comfort zone.

Consumer Spending And Income Trends:
Percentage Changes At Annualized Rates: Various Horizons
Inflation-adjusted 1-Mo 3-Mos 6-Mos 1 Year Q1/Q4
Consumption -2.3% 2.2% 3.7% 3.1% 3.1%
  Goods -0.5% 0.8% 4.5% 3.3% 1.7%
    Durable Goods 1.4% 3.5% 5.5% 4.0% 3.2%
    Nondurable Goods -1.4% -0.6% 4.0% 3.0% 1.0%
  Services -3.4% 3.3% 3.2% 3.0% 4.1%
Consumer Income          
  Real DPI 2.6% 4.6% 4.1% 2.9% 4.1%
    Per Capita 1.8% 3.8% 3.2% 1.9% --
Memo: Mar 2007 3-Mos 6-Mos 1 Year --
Savings Rate (Pct) -0.8 -1.0 -1.1 -1.3 --
Real Income Momentum By Type
Annual Rates Of Growth
  3-mos 6-mos 12-mos
Personal Income 7.7% 5.4% 3.5%
  Wages and Salaries 7.2% 5.9% 2.4%
  Proprietors' Income 0.5% 4.1% 3.1%
    Non Farm (prop) -3.4% 0.2% 1.5%
  Rental Income 28.4% 21.8% 9.3%
  Dividend Income 11.4% 10.2% 11.0%
  Interest Income 11.5% 11.9% 1.2%
  Transfer payments 7.9% 11.5% 7.2%
  Social Insurance Payments 4.6% 10.1% 7.3%
Total Non-farm Income 6.1% 7.7% 5.4%
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