Tag Archives: personal spending

Consumers May Have Hit Their Savings Peak

April 1, 2015

By Marguerite Ward

A steady rise in personal income and an uptick in consumer spending suggest that slowly, but surely, the consumer will soon emerge from winter hibernation.

Personal income in Feb. increased $58.6 billion, or 0.4 percent, outpacing the Jan. growth rate of 0.3 percent.

Disposable personal income increased $54.2 billion, or 0.4 percent in Feb., maintaining Jan.’s growth rate, according to the Bureau of Economic Analysis(BEA).

In other good news, consumer spending increased for the first time in two months, coming in at 0.1 percent. While this is slightly lower than expected, it’s stronger than the December and Jan. rate of -0.2 percent.

“Households are still flush with the money saved from the big drop-off in gasoline prices and, with the labour market still on fire, incomes should continue to increase at a solid pace. That provides the scope for a big gain in consumption in the second quarter,” said Ashworth.

But consumers were saving at a rate of 5.8 percent, the highest level in Feb. since 2012, according to the Bureau of Economic Analysis (BEA).  Personal savings – or disposable personal income minus spending – was $768.6 billion in Feb., compared with $728.7 billion in Jan..

But this isn’t cause for alarm.

Low gas prices, a strong dollar and a steady growth in personal income suggest that consumers may have hit their savings peak.

“The unseasonably bad weather in Feb. partly explains why first-quarter GDP growth estimates have been falling in recent weeks, as the economic data covering that month trickles out,” said Paul Ashworth, chief economist at Capital Economics Ltd.

With temperatures slowly rising, increased money consumers saved at the gas pump from historically low gas prices will likely translate into increased spending in March.

Where might consumers spend their money in March? Digging a little deeper into the data from Feb., there was a 0.4 percent increase in spending on nondurable goods, like food and  apparel. There was a decrease of 0.1 percent in durable goods like appliances and automobiles.

“I expect we’ll see spending outpace income over the next few months, including in March,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics.


Kevin Hobbs, a software developer at World Courier said, “Most likely, the money I saved at the gas pump will go to spending this spring or summer.”

An anomaly to this is retail sales, which were down for a third consecutive month. Retail sales decreased 0.6 percent from Jan.. However, total sales for the December 2014 through Feb. 2015 period were up 2.9 percent, according to U.S. Department of Commerce.

“I suspect spending was held down by colder than usual weather in late Feb.,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics.

While the rising dollar means bad news for manufacturing and export-driven industries, it means the U.S. consumer will continue to get more for their buck. And low oil prices – while potentially devastating to oil-centric economies like Saudi Arabia or even Houston, Texas – will translate into lower gas prices and likely empower the consumer to spend some of their saved cash.

“Even if the first quarter is weak, the outlook for consumption over the remainder of this year looks good. Personal income increased by a solid 0.4% [month over month] in March and the saving rate shot up to 5.8% last month, from only 4.4% last November,” said Ashworth.

The Feb. 21 agreement to a labor dispute at major West coast ports is also a good sign for consumers, as the dispute that hampered business across the country.

For this and several other reasons, Christophe Barraud, Chief Economist Strategist at Market Securities said, “I’m betting on a rebound in Q2 and even in March…”

The Gap Between Personal Income and Outlays is Expected to Continue in March

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.

Consumer Spending Accelerates, But Income Doesn’t Keep Up the Pace

MARCH 30, 2012

By Natalia V. Osipova 

Two months of solid consumer spending shows the U.S. recovery is gathering momentum. But it’s not yet time to celebrate. The disposable income of Americans in real terms was shrinking over the same period. So was the personal saving rate. The burgeoning gap gives an alert.

Growing at the fastest rate in seven months, personal consumption gained a larger-than-expected 0.8 percent in February, and the figure for January spending was revised upward, to 0.4 from 0.2 percent, the Bureau of Economic Analysis reports.

It would have been good news for the economy, if gains in personal income and saving rate were as swift as spending growth.

Personal income in February grew disproportionally slowly, 0.2 percent. And the saving rate, a leading indicator for the economy, fell for the second consecutive month, to 3.7, the lowest reading since August 2009.

In real terms, the numbers were even gloomier. Adjusted for inflation, personal consumption rose just 0.5 percent, and real income dropped 0.1 percent.

Rising energy and gasoline prices remain the biggest stress-factors. Yet, they don’t stop Americans from buying cars.  Auto-sales, increased 3.2 percents, took the lion share of spending. Guy Lebas, chief fixed income strategist at Janney Capital Markets, said it should take about three months until consumers react on surging gasoline prices.

Other major gains came from spending on clothing and shoes, up 2.1 percent, and on recreational goods and services, up 1.1 percent.

The increasing gap between brisk spending and lackluster income most likely means spending outrunning income won’t be sustainable.

The February income numbers may be revised higher.

“Income numbers are missing something,” suggested Mark Vitner, senior economist at Wells Fargo Securities, pointing out several upward revisions in recent months.

One reason not to worry about the current discrepancy is the fast pace of hiring, said Michael Feroli, chief U.S. Economist at JPMorgan. Strong job growth for the past three months is making  Americans willing to spend.

“Under current condition consumers can easily sustain the current pace of the spending gains,” said Feroli.

Some economists, however, disagree.

“We don’t want to turn back to purchasing everything on credit,” said Ken Kim, economist at Stone & McCarthy Research Associates. “Without income growth you can’t sustain spending. It’s done by credit, going back to old bad habits.”

In stepped-up spending on both durable and non-durable goods, as well as on services some economists see consumer willingness to take on more debt. Consumer borrowing in the three months to January remained the highest in a decade.

The current imbalance between spending and income would add to the “unsustainable deficits” the American economy is running, said Ken Mayland, president of ClearView Economics, a firm specializing in economic research and forecasting.

“This arithmetic is not working,” concluded Mayland. “Wage growth – that’s a missing ingredient. That’s a secret sauce.”

First Report on Personal Income and Spending in 2012 got a Weak Start

MARCH 1, 2012

By Natalia V. Osipova

Americans saw their income rise again in January, but spending remained flat for the third month in a row.

The report on personal income and outlays, issued by the Bureau of Labor Statistics today, made for a grim reading.

Personal income rose slower than expected, by 0.3 percent, to $13,238 billion in total. Real disposable income dropped by 0.1 percent.

Spending, measured by the Personal Consumption Expenditures index, gained 0.2 percent, or $23.2 billion. However, in real terms, spending stagnated.

More jobs created in January, didn’t translate into more spending.  Unemployment contracted from 8.5 to 8.3 percent, the lowest since February 2009. This rate is still high even with the “new normal” joblessness rate of 6.7 percent, suggested by the Federal Reserve Bank of San Francisco last year.

“Despite the fact that there was a big increase in the number of jobs, total wages and salaries didn’t go up as much as, at least I expected,” said Joel L. Naroff, the chief economist and the president for Naroff Economic Advisors. Inflation picked up 2.4 percent over the past year, and people’s spendable income shrank.

“Purchasing power is actually falling, because wages are just not picking up with even the fairly moderate increase in prices,” said Mr. Naroff.

Americans’ consumer confidence is still weak. Since November 2011, workers income in real terms has been grow, but they have been reluctant to spend more.

Purchases of services that make up about 76 percent of the United States GDP slipped 0.1 percent. This is another evidence for low consumer sentiment. Shoppers cut down expenses on something they could probably live without.

One explanation for weak services presents a paradox about surging energy prices.

Warm winter allowed Americans to save on their utility bills. But consumers chose not to spend this spare money.

“That was good news for consumers, in that they were able to get extra money. For retailers, they didn’t pull out of it, ” explained Mr. Naroff.

Besides that,  gas prices remain a big worry. Economists say, this could soon weaken consumer spending even more.

Mr. Naroff said consumer confidence could fade in March if gas prices continue to grow.

Housing problems, credit restrictions and instable job market are some of the factors that currently hamper consumer spending growth and general recovery.

“The U.S. economy is no way super-healthy right now,” said Jennifer Lee, Senior Economist at BMO Capital Market.