The Bureau of Economic Analysis will release tomorrow the latest Personal Income and Outlays report. Economists surveyed by Bloomberg forecast a month-to-month personal income increase by 0.2% compared to 0.3% in February. Here are five things to watch in the March report:
The Fed can’t stop growth but it can slow it. Economists estimate a deceleration in growth of aggregate private sector wages and salary earnings but for consumers to continue spending. “For March, we look for only a modest gain, but that comes after eight consecutive months of growth in real income, which we continue to see as a near-term tailwind for spending,” said Shannon Seery, vice president and economist for Wells Fargo’s Corporate and Investment Bank.
- Consumer spending keeps going down but not too much.
Consumer spending declined in February after an uptick in January. Economists expect the decline to continue over the course of the first quarter after real personal spending slipped in February. Regardless, the report will show consumers continue spending on services, more specifically restaurants. The retail sales report showed a drop in sales but revealed a growth in services spending over at restaurants. Even with continued sustained price hikes in leisure activities such as hotels and travel demonstrate ongoing demand for services.
- Inflation measure will point to another rate hike.
The report will include measures of inflation such as the Personal Consumption Expenditures (PCE) Price Index, which measures changes in the prices of goods and services that consumers purchase. Economists expect the core PCE to increase 0.3%, which makes a 4.6% yearly increase – still too high based on the Fed’s desired benchmark and unchanged from the month before.
We can expect another increase in the Fed’s interest rates by at least a quarter point next week – which are currently at 4.75% to 5.00% – despite the continued bank turmoil.
- Are consumers too confident on their spending power based on the labor market?
Even though labor market growth and inflation are slowing, the report will disclose whether consumers are paying attention to these conditions as they continue to spend. Even with a decline in hours worked compared to January and February, wages are slowing and so the labor market has cooled. The unemployment rate decreased to 3.5%, according to the March jobs report released by the Bureau of Labor Statistics at the beginning of the month. The employment trend in leisure and hospitality continued to rise, indicating that expenditure has also been notable. This can be a significant indicator of consumer confidence and economic stability.
- Less savings!
Tomorrow’s report will contain information regarding the personal saving rate, which is the percentage of after-tax income saved by individuals. The most recent report indicated a rise in personal savings to 4.6% in February from a revised 4.4% in January; tomorrow’s report could reflect the impact of slower wage growth and less benefits against high prices – the saving rate in March of last year was 3.8%. Economists forecast that the savings rate is going down because inflation is still going up and pay growth has not been enough.
U.S. households lost extended SNAP benefits at the end of March which will be a drag on personal income on low-income individuals and families in coping with the effects of the COVID-19 pandemic.