Personal income rose 0.4% (month-on-month) in February. Removing taxes and inflation real disposable personal income was up just half that pace at 0.2%.
Personal spending was up a modest 0.1% in nominal terms, and actually fell 0.1% after removing price effects. This poor showing follows a 0.2% decline in real spending in January.
By component, spending on services fell for a second straight month (-0.14%), durables sales were flat (-0.05%), and non-durables inched up 0.1%.
Consumer prices rose 0.2%, pushing headline inflation (year-on-year) up to 2.1% (from 1.9% in January). Core prices (excluding food and energy) also rose 0.1% (m/m), and accelerated to 1.8% in February (from 1.7%).
The personal saving rate rose to 5.6% from a downwardly revised 5.4% in January
Key Implications
After a knock-out quarter end to last year, consumers tightened their purse strings at the start of this one. Real consumer spending looks to advance by less than 1% (annualized) in the first quarter after a 3.5% gain in the fourth quarter of 2016. So, just like last year, 2017 year is likely to start with a thud in terms of real GDP growth.
And just like last year, it is likely to be a temporary setback. Weather and delayed tax rebates likely played a part and with strong consumer confidence and strengthening income growth, we fully expect spending to bounce back in the second quarter, restoring economic growth to an above trend rate.
Notably, inflation continues to push higher with the core rate moving to 1.8%, in striking distance of 2%. With this inflationary backdrop in place, the Federal Reserve is likely to look past the temporary setback in economic growth and continue to normalize monetary policy.
