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Personal Income: Income Gains & Trend Spending Before Virus

March 27, 2020

Bottom Line: Prior to the shutdown of large parts of the economy for the Covid-19 coronavirus, personal income growth was accelerating modestly, while spending was mostly on-trend through February. Core PCE, the Fed's preferred inflation metric, grew 0.16%, 2.3% annualized in the 3 months ended in February and 1.8% over the last 12 months. These data confirmed that economic growth in the first two months of the quarter was mostly on-trend or even slightly stronger than trend, in the 2.25 - 3.25% range annually. However, looking forward we expect a substantial hit to the personal income numbers due to job-losses starting in the hospitality sector in mid-March and a huge hit to spending as self-quarantining started in many parts of the country.

Personal Income ROSE by 0.6% in February, compared with market expectations for an increase of 0.4%. The prior month was revised lower from 0.62% to 0.61%. Personal Income is now 4.0% ABOVE its year-ago level.

Wages and Salaries ROSE by 0.5%, Wages are now 3.3% ABOVE year-ago levels. Personal Tax Payments ROSE by 0.8% and are now 3.8% ABOVE their year-ago level, reflecting the year-on-year changes in employment and income.

Disposable Income ROSE by 0.5% and is now 4.0% ABOVE its year-ago level.

There were small declines in durable goods, a small decline in nondurable goods spending and small increases in services spending. Spending is now 4.9% ABOVE its year-ago level.

The Saving Rate ROSE by 0.30 points to 8.2%.

The PCE Price Index ROSE by 0.1% and is now 1.8% ABOVE its year-ago level. Meanwhile, the Core PCE Index ROSE by 0.2% and is now 1.8% ABOVE its year-ago level.

Real Consumer Spending ROSE by 0.10% and is now 3.0% ABOVE its year ago level. The January/February average is 1.1% annualized above its Q4 level.

Article by Contingent Macro Advisors