Personal Income, Spending Point to Slowing Economy

Personal Income, Spending Point to Slowing Economy

The Commerce Department reported Monday that personal income in March rose just 0.2%. This is down from a 1.1% gain in February. Economists had expected an increase of at least 0.4%. The disappointing number is consistent with other economic measures for March showing a pull-back in the economy.  

Personal spending rose an equivalent amount, 0.2%, which was higher than economists expected. The consensus prediction was for spending to be flat. In February, spending increased 0.7%. The savings rate remained at 2.7%. 

Last week, Commerce released its initial estimate of 1st Quarter GDP. The report found quarter growth weaker than expected at 2.5%. The increase was driven by a spike in personal consumption, which spiked 3.2% for the quarter. 

The March spending number, while higher than expected, confirms that consumers pulled back their spending at the end of the quarter. It is likely that last week’s GDP numbers will be revised down when Commerce released their revised estimate for the quarter, in three weeks. 

The boost in consumption looks likely to have been concentrated early in the 1st quarter. This is likely a by-product of tax hikes that took effect in January. Where possible, taxpayers moved income forward into the final months of 2012, avoiding the higher tax bill in the new year. This boost of income likely fueled consumption early in the quarter. 

The March numbers suggest the economy is reverting now to its trend-line, which is generally flat economic growth. Friday’s non-farm payroll report will provide more detail on whether this is the case. 

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