It’s all about the jobs market
April 29, 2012
By Natalia V. Osipova

 

American consumers’ appetite continue to outpace salaries and wages.

Analysts say they expect to see personal income figures for March rise 0.2 percent and spending rev up 0.4 percent. The Bureau of Economic Analysis will issue the official numbers on Personal Income and Outlays on Monday 8.30 EST.

The income growth rate is likely to be unchanged from February, influenced a still-anemic jobs market. Regional and state unemployment rates held steady in March. And spending, although pulled back from a 0.8 percent rise in February, should remain strong boosted by the early spring, Easter holidays and the new iPad release. The spending data in  the first quarter GDP report also bolster optimism about continued consumption.

“We still have spending growing faster than income,” said Mark  Vitner, senior economist at Wells Fargo securities. He indicated, that a drop in layoffs and warm temperatures supported positive consumer sentiment. “People that have been working feel more secure about their jobs and more willing to move out and make major purchases , like auto vehicles and household appliances,” said Vitner.

Auto sales in March remained solid, up 13 percent, despite rising gasoline prices. Retail sales went up 0.8 percent, as Americans shopped for the holidays and lined up for the new iPad, which went on Sale March 16.

The first quarter GDP report showed that  real personal consumption gained 2.9 percent.  But this most likely reflected a seasonal distortion. “It’s difficult to put much trust in numbers in March in April,” said Gary Schilling, president of A. Gary Schilling & Co consulting firm and a Bloomberg View columnist. He said, Easter shopping could confuse real spending until May.

Although personal consumption is expected to outpace income growth for the second consecutive month, analysts don’t think it’s a trend. “That can’t continue indefinitely,” said Vitner. Consumers will soon run out of resources to support aggressive consumption, he and other analysts interviewed said.

Given the fact that in March, most economic indicators were sagging, there is little support for for a higher personal income rate.

“In the current environment nobody is getting raises,” said Thomas Simons, Jefferies & Co vice president and money market economist.  “There is no reason for employers to give workers incentives when it’s difficult for them to go and get another job,” he said.

In addition to that, modestly rising income is absorbed by inflation. “Earnings are growing slower than inflation and it means consumers are losing their purchasing power,” said Francesca Panelli, an economist for Banca Aletti.

Labor market figures give the most accurate clues for the discrepancy between income and spending.

“We want to see more income growth and stronger consumption spending supported by the healthy jobs market. That would be ideal,” said Sweet. But, increase in hiring doesn’t result in the prosperity, he continued. “The jobs market has been geared towards low-paying industries.”

So the rising number of jobs may not even be a good sign for income growth in this “choppy recovery.”

“If the jobs market starts to tighten, we will see wage growth picking up,” said Sweet.