U.S. Personal Spending & Income Firm

U.S. consumers love to spend, even if they don't have the money. Personal consumption expenditures increased an expected 0.6% during March as spending grew faster than income for the second month in a row. During the last six months spending increases have been between 0.3% and 0.6% as consumers have dug into their wallets to buy more costly gasoline. Though spending on gasoline slipped during the last two months, it's up by one-third during the last twelve. In constant dollars, spending on gasoline actually fell 1.3% y/y.

Leading the rise in March spending was a 9.2% increase (14.9% y/y) in spending on motor vehicles. In real terms spending rose 8.9%. Also strong was the 1.5% increase (4.9% y/y) in nominal apparel spending which followed a similar February gain; both were led by discount pricing. In real terms March spending rose 5.3% y/y. Also strong was spending on home furnishings. The 1.1% gain followed an even stronger February increase. A 4.4% y/y rise (8.9% in real terms) follows the 6.2% decline during all of last year. Spending on services continued firm at 2.9% y/y but that was bloated by a 4.6% y/y jump in health care expenditures.

These spending gains outpaced personal income which rose an expected 0.3% after a 0.1% February increase (3.0% y/y). Help from lower taxes has now faded. March disposable income rose 0.3% (3.4% y/y) after having been unchanged during the prior month. Higher gasoline prices also cut into income growth such that the y/y gain in real disposable income amounted to only 1.4%, barely improved from last year's 0.9% increase. The combination of spending gains that outpaced income growth lowered the personal savings rate to 2.7%, its lowest since late-2008. The rate still was up, however, from the 1.0% low at the beginning of the last recession.

Moderate employment declines left wages & salaries up just 0.2% (1.1% y/y) after the 0.1% February uptick. Nevertheless the modest y/y gain is improved from the sharp 4.0% decline last year. Wages in the factory sector, however, were unchanged in March (-3.4% y/y) but that still contrasted well to the 11.3% shortfall last year. In the private service sector, wages increased 0.2% (2.3% y/y). Workers in the government have seen better wage growth. A 0.2% March gain pulled wages up 2.2% y/y though that was a deceleration from the 3.6% rise last year.

Improvement in the housing market pulled proprietors' income up 3.7% y/y, its strongest gain since late 2006. The stabilization of interest rates left interest income up 1.1% y/y, its best since 2008. Dividend income remained down 6.1% y/y but that compared favorably to last year's 19.3% drop and the 10.3% 2007 decline. Finally, unemployment insurance benefits rose 8.7% m/m though the one-third increase versus last year was down from its doubling last year.

The PCE chain price index rose just 0.1% with the 1.0% slip (+35.2% y/y) in gasoline prices. The core PCE price deflator also rose just 0.1%, held back by a 0.6% decline (-0.4% y/y) in apparel prices and a 0.1% slip (-4.1% y/y) in furniture prices (-1.6% y/y). Services prices also ticked up just 0.1% (1.6% y/y) for the second month. but health care prices rose 0.2% (2.5% y/y). Offsetting some of this strength was an 11.0% y/y drop in personal computer prices.

The personal income & consumption figures are available in Haver's USECON and USNA databases.