Those trumping up the notion consumer spending would pick up in the first quarter were in for a surprise today.
The BEA report on Personal Income and Outlays was anything but strong.
Bloomberg Econoday found today’s report “surprising”.
The Econoday economist’s consensus reading for February was 0.1%, with the actual report coming in better at 0.2%.
The surprise was January took a nosedive from an initial report of +0.5% down to +0.1%.
Highlights
The outlook for the consumer has buckled, at least a bit following a surprisingly weak personal income and spending report for February. Income rose a soft 0.2 percent with wages & salaries slipping 0.1 percent. But the worst news comes from the spending part of the report, up only 0.1 percent and with January revised sharply lower, now also at 0.1 percent vs an initial jump of 0.5 percent.
And, in what will also push back chances for an April FOMC rate hike, inflation data are on the soft with the core PCE up only 0.1 percent and the year-on-year rate unchanged at 1.7 percent and no closer to the Fed’s 2 percent goal. Overall prices are down 0.1 percent with the year-on-year rate at plus 1.0 percent.
Turning back to income, the fall in wages & salaries is the first since September last year but was offset in part by a rise in disposable income that reflected gains for both income transfers and rental income. And consumers continued to put money in the back as the savings rate, in perhaps a sign of consumer defensiveness, rose 1 tenth to 5.4 percent for a 3-year high.
The downward revision to January retail sales to minus 0.4 percent from an initial plus 0.2 percent (posted at mid-month) swept January spending in this report likewise lower. Both durable goods and non-durable goods now show contractions in the month with growth in service spending pulled lower. Data for February are also soft with spending on non-durable goods down sharply on lower fuel prices and with spending on durable goods and services little changed.
GDP estimates for the first quarter will not be going up following this report and estimates for the second quarter and beyond may be coming down. The lack of wage gains, together perhaps with softness in home appreciation, may be holding back the consumer more than thought. This report points squarely at weakness, weakness for what is the core itself of the U.S. economy.
Recent History
The Federal Reserve’s 2 percent line is centered on the core PCE price index which is expected, helped by another gain for core consumer prices, to rise a monthly 0.2 percent in February. The gain could put the year-on-year rate, at plus 1.7 percent in January, within striking distance of the Fed’s target. But wages eased in the employment report for February and do not point to much strength for personal income which is expected to rise only 0.1 percent. Personal spending, despite a gain for core retail sales, isn’t expected to show much life either in February, at a consensus plus 0.1 percent. A weak showing for personal spending, in contrast to a rise in the core price index, would not raise chances for an April FOMC hike.
There’s Econoday back it again promoting the silly notion there was some semblance of a chance the Fed would hike this month.
Econoday was trumping up this idea even before Atlanta Fed president Dennis Lockhart stuck his foot in his mouth on March 21.
In his speech, Lockhart cited “sufficient momentum evidenced by the economic data to justify a further step at one of the coming meetings, possibly as early as the meeting scheduled for end of April.”
For my comments on Lockhart’s speech, please see Kaleidoscope Eyes.
This report puts the economy on a recession track.
Mike “Mish” Shedlock
GDPNow weighs in –
Latest forecast: 0.6 percent — March 28, 2016
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 0.6 percent on March 28, down from 1.4 percent on March 24. After this morning’s personal income and outlays release from the U.S. Bureau of Economic Analysis, the forecast for first-quarter real consumer spending growth fell from 2.5 percent to 1.8 percent. The forecast for the contribution of net exports to first-quarter real GDP growth declined from –0.26 percentage points to –0.52 percentage points following this morning’s advance report on international trade in goods from the U.S. Census Bureau.
Hi Mish just want to give you my prediction so you can credit me with uttering it first. After leaving office within 3 years Obama will come out as an active Muslim. This will be in response to increasing pressure to control Islamist outrages. Of course I may not be around then but so what…..?
Regards……….Barry S Burdick North Port Fl.
He already stated his Muslim faith and he is now president so he is already active under the control of George Soros. His wife’s name is Michael as he called her by name at a joint chiefs of staff presentation some time ago. What about Joan Rivers and her statement going into surgery, Michele is a he, a Tranny!
Maybe Barry B meant Obama will come out of the closet as a gay man?????
Snark Snark!!!!!!
However both actions will only further depress the Economy!
Hey it’s the Greatest Depression Evah!!!!!!!!!
“This report puts the economy on a recession track.”
Yep. Bullz need to specify economic drivers that will break downward trend.
The past few years growth (such as it was) driven by completion of business cycle (inventories / sales now at recessionary level) and costs associated with ACA compliance.
Now what? War(s)?
Business Cycle OVER
Of course consumer spending is inadequate…the rate of flow total individual incomes always tends to be less than the rate of flow of total costs/prices. That fact is the thing Keynes, von Mises, Keen, Mish and nearly every other economist and pundit missed, and as innovation and AI ADD more scarcity of individual incomes to that ratio there is no escaping the unstable consequences unless you combine Social Credit and Austrian economics as I have and implement a universal Dividend and A PRICE DEFLATIONARY DISCOUNT TO RETAIL PRICES. Wake up and die right before we stumble id!otically and orthodoxly into catastrophe….and actually look at what I am saying.
Can you prove that “the rate of flow total individual incomes always tends to be less than the rate of flow of total costs/prices”? What is your evidence for this claim? Is is based on an hypothesis, or on data?
It is based on faith, mysticism, and snake oil.
There are many factors that make this the case, and if one goes and looks at and compiles the statistics of total individual incomes and total prices of the products produced found in the empirical data in the cost accounting statistics for a given period of time of any business that is not actively in bankruptcy it will be found that more prices must be liquidated than individual incomes produced for the same period. As this is the reality for virtually every business it is a dynamic factor that must be accounted for. If one stops and thinks about the fact that the costs of depreciation in today’s high tech economy must be factored INTO PRICES IN ADDITION to the costs of total finance then it becomes quite clear that capital equipment-facilities/means of production must be paid for twice, once as the cost of their purchase/construction and once again as these assets depreciate, obsolesce and/or break down. Throw in that savings, profits and re-investments all take money/incomes from one flow and transfer them over into another later flow diminishing individual incomes from the first. Then consider that innovation and AI are increasingly eroding total individual income/purchasing power….and as flows costs/prices will always tend to exceed individual incomes simultaneously distributed to liquidate them….which makes the system ITSELF, EVEN IF IT IS LEFT ENTIRELY TO ITSELF AND UNREGULATED BY THE GOVERNMENT, ….COST INFLATIONARY.
Yeah, right Dr Strangepork. The above is all based on empirical data to be found in any going concern if one only looks at it. It is grounded in the 3 and 4 dimensional data and day to day realities of businesses and accountants…..not some abstract theoretical BS and/or orthodox scribbling s of some economist….who probably never ever ran a business or had any concept or knowledge of accounting data and its economic and monetary significance.
DARE TO LOOK AT THE “ON THE GROUND” DATA, THE RELATIONSHIPS BETWEEN THEM….or shut up.