U.S. Personal Income & Spending (February 2024)
Shernette McLeod, Economist | 416-415-0413
- Category:
- U.S.
- Data Commentary
- Consumer
U.S. Consumers Continue to Spend in February even as Income Growth Slows
- Personal income grew 0.3% month-on-month (m/m) in February, a step down from January's 1.0% gain and below market expectations for a 0.4% increase.
- Accounting for inflation and taxes, real personal disposable income fell -0.1% in February after no growth in January.
- Personal consumption expenditures rose 0.8% m/m, a notable uptick from the 0.2% growth posted in January and above market expectations (0.5%). Spending in real terms rose by 0.4% m/m, more than recovering from the previous month's decline (-0.2%). This reflected growth in both goods (0.1%) and services (0.6%) spending.
- On inflation, the Fed's preferred inflation metric, the core PCE price deflator, decelerated on both a monthly and annual basis. The measure fell from 0.5% to 0.3% month-over-month and from 2.9% to 2.8% annually. Both readings were in-line with market expectations.
- The personal savings rate fell in February to 3.6% from January's 4.1% reading.
Key Implications
- Even in the face of lower income growth, U.S. consumers found the reserves to keep spending in February as they pulled back on savings. The dynamic of lower savings and subdued wage growth resulting from a cooling labor market are likely to remain the key stories behind consumer spending for the remainder of the year. With two months in for the quarter, consumer spending is currently tracking 2.3% q/q (annualized) for 2024 Q1, which is a notable step down from the 3.3% pace recorded in the previous quarter.
- After the past few months of firmer than expected readings on consumer price index inflation, policy makers at the Federal Reserve may not be too happy to see still firm readings on their preferred inflation metric. While core PCE inflation decelerated relative to January's hot reading, at 0.3% it is still running higher than the Fed would prefer. Additionally, both the 3 and 6 month annualized measures have gained traction recently. While Fed members are still signaling intentions to beginning easing its policy at some point this year, the first cut isn't likely to happen until sometime this summer.
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