The Bureau of Economic Analysis will release its March report for Personal Incomes and Outlays on Monday. This release follows a mishmash in February of slow income growth and a lower than expected rebound in consumer spending. Here are five things to look for.
1. Strength of Q2
This report will be critical in determining how much momentum the economy will have carrying over first quarter growth into the second quarter. GDP reports for the first quarter showed a 3.2 percent increase – above economists’ projections and up from 2.2 percent in the fourth quarter at the end of last year.
“We have to see how it breakdowns between the months of the quarter. The more it is concentrated in March, the stronger the start to the second quarter,” said Michael R. Englund, principal director and chief economist for Action Economics, LLC.
While the headline GDP number was solid, consumer spending increased only 1.2 percent in Q1 2019, down from 2.5 percent in Q4 2018. The upcoming report will confirm this slowdown.
2. Consumer Spending
Retail sales edged up in March to 1.6 percent seasonally adjusted, marking the strongest increase since September 2017. Economists are expecting consumer spending, a broader metric than retail sales of households to spend, to also reflect a good gain in March. Consumer spending increased up 0.1 percent in January – far below economists’ projections with a revision to December of a 0.5 percent drop to 0.6 percent. This report will include spending data for both February and March, a rarity, due to the effects of the partial government shutdown earlier this year.
The Consumer Price Index (CPI), which measures price is an important contributor for estimations of the core personal consumption expenditure (PCE) deflator. Based on February and March data, CPI showed modest gains month-to-month. Economists are expecting the core (PCE) deflator, the Fed’s preferred inflation metric, to also show modest and sequential gains in this release.
“The question is if this is a one time event or does this suggest a downturn in the inflation outlook,” said Stan Shipley, managing director and economist at Evercore ISI.
Based on the CPI’s year-over-year rate in February (1.6 percent) and March (1.5 percent), economists are expecting an uptick in the core PCE deflator current year-over-year rate in April and May due to the sharp rise of gasoline and oil prices through April.
The Fed also announced in March, it did not intend to raise interest rates in 2019. As with personal spending data, the PCE price data will include both February and March numbers.
4. Increase in Personal Income and Decrease in Savings Rate
Personal income numbers showed weak growth in the Q1 2019 GDP report. Personal income increased $147.2 billion in the first quarter, down from $229.0 billion in the fourth quarter. Economists project an increase in personal income in March to 0.3 percent, up from February’s 0.2 percent.
The personal savings rate rose sharply in December to 7.5 percent, up from 6.2 percent in November showing the first signs of consumers holding back income and spending less. Economists project the current savings rate of 7.5 percent to drop back down to the 6 percent range as consumers indicating consumers spending more of their savings rather than adding to them.
5. The broader economy
With stronger than expected first quarter GDP numbers, this month’s release will confirm more than just personal income and spending, but provide a broader scope into how the rest of the economy is faring and will continue throughout the second quarter. The numbers from this month’s jobs report confirmed strong job creation, steady wage growth and average hourly wages – and is expected to continue.
“The economy is in fine shape. We are creating jobs,” said Shipley. “We are getting good wage growth and employment growth. We are creating high average hourly wages that is translating into income and consumer spending income.”