U.S. Personal Spending & Income Still Under Pressure

Any recovery in consumer spending will have to wait. The U.S. Bureau of Economic Analysis reported that personal spending during March fell another 0.2% and adjusted for inflation spending also fell 0.2%. These declines followed two months of increase but for all of the first quarter, real spending rose at just a 2.2% annual rate. That makes up little of the 4.3% decline during 4Q and the 3.8% 3Q drop.

Real spending on furniture & appliances last month retraced the gains of January & February with a 2.3% (-1.3% y/y) decline. Real spending on apparel also stuttered and fell 0.6%, reversing the February increase. Even real spending on services has been flat as it rose 0.1% last month after no change during February (+0.9% y/y). Any life in spending during March was limited to autos which rose 0.9%. That finished a quarter where spending made up half of the 4Q decline with a 4.8% increase.

The reason for the delay in a spending recovery is that income remains under extreme pressure from the soft job market. The 0.3% decline in March personal income was the fifth shortfall in the last six months and it fell short of expectations for a 0.2% decline. In addition, disposable personal income was flat for the second consecutive month. That followed the 1.6% jump which was the result of a 10.5% monthly drop in taxes. Adjusted for inflation, real disposable income also was flat last month after a 0.3% decline during February. For the quarter, real take-home pay rose at a 6.2% annual rate which was double the 4Q increase.

The good news from the latest report was that despite weaker income growth, lower spending has worked to lift the savings rate. The rise to 4.2% during March lifted the quarter's rate also to 4.2% which was its highest level since 1998.

Reflecting the weakness in the job market, wages & salaries fell another 0.5% (-1.2% y/y) and they have been flat or down in each of the last seven months. Over that period wages have fallen at a 3.2% annual rate, the quickest rate of decline since 1994. Private sector wages during that period were down at a 4.7% annual rate, still the worst since 1994. These declines contrast to wages in the government sector which continue to increase, at a 4.1% rate during the seven months.

Lower interest rates continued to pull interest income down, by 0.6% during each of the last three months (-6.1% y/y). In addition weak corporate profits lowered dividend income by 1.8%, about the monthly rate of decline since October (-10.2% y/y).

Finally, the PCE chain price index benefited from a 4.3% seasonally adjusted decline in gasoline prices (-37.7% y/y) and fell slightly. Core pricing power repeated the gains of the prior two months with a 0.2% increase that reflected a 1.5% increase in "other" nondurable goods prices. Most other goods and services prices were flat or down. The latest gain in the overall price deflator exceeded Consensus expectations for a 0.1% rise.

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

Ponds and Streams: Wealth and Income in the U.S., 1989 to 2007 from the Federal Reserve Board can be found here.