Spending Improves but Real Incomes Decline

Total personal income was flat in March after rising by 0.5% in February. Income from wages and salaries, rental income and government transfers edged up slightly, but those small gains were offset by declines in proprietors’ income, and income from interest and dividends. Personal income receipts from interest and dividends fell by $33.1 billion in March after increasing by $29.7 in February.

Real disposable income (adjusted for taxes and inflation) decreased by 0.2% in March following an increase of 0.3% in February. Real personal consumption expenditures rose by 0.3% after remaining flat during the previous month. Real consumer spending on durable goods jumped by 2.0% after declining by 1.1% in February. Spending on nondurable goods was muted at 0.2%, while spending on services was unchanged over the month. The strong increase in consumption relative to income led to a large drop in the saving rate from 5.7% in February to 5.3% in March.

Growth on a year-to-year basis slowed in March compared to February:

• Real disposable income in March was up by 3.3% compared with 3.9% in February
• Real personal consumption expenditures increased by 2.7% versus 3.0%
• Growth in real spending on goods (3.0%) continued to outpace spending on services (2.5%)

Consumer prices were up by 0.2% over the month in March. Food prices declined by 0.3%, while prices for energy goods and services rose by 1.5%. Factoring out food and energy prices to arrive at core inflation, prices were up by 0.1%. Over the year, consumer price inflation was just 0.3%.

Personal spending recovered somewhat in March and although it was a little lower than expected, it was still the strongest reading since last November. Looking over the first quarter, real personal spending was up by a meager 1.9% even though real disposable income grew by 6.2%. That divergence is an indication that consumer spending has some catching up to do. In spite of a lackluster performance in the first quarter, if employment continues to rise as expected, the outlook for personal consumption expenditures remains solid for the rest of the year.

Source:  http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm