American consumer spending and income rose more than anticipated in February, an indication that the economy may have improved from its weak 0.4% growth in the fourth quarter of last year.
Personal spending rose 0.7%, according to the Commerce Department, outstripping the 0.6% forecast and January’s revised 0.4% boost and though a portion of the increase was due to higher energy prices it was the strongest monthly expansion since September. After adjusting for inflation spending was 0.3% higher in February, the same as in January. Consumption accounts for 70% of US economic activity.
Personal income gained 1.1% in February after the tax law induced dislocations of December and January. Many companies paid dividends and bonuses early to avoid the higher taxes that began on January 1st. Personal income rose 2.6% in December and fell 3.7% in January. The February increase was, along with an equal gain in November, the best result since incomes rose 1.9% in January 2011.
Annual income gains show a less optimistic trend than the most immediate monthly figures. Since reaching a post-recession peak of 6.5% in February 2011 the yearly improvement has slipped steadily downward to its current 2.4% level (January 2.2%, February 2.6%). In 2010 the monthly average was 3.8% as the economy pulled out of the recession. In 2011 the average rose to 5.1% a month and in 2012 it dropped to 3.5%.
By historical standards last year’s income performance was weak. The monthly average over the past ten years, including the financial crash and recession was 4.1%. The 20 year average is 4.7% and the 30 year average is 5.4%.
Personal spending shows the same of tailing off since the peak of 5.6% in July 2011. That year the annual increases averaged 5.0% a month, in 2012 they had fallen to 3.6%. So far in 2013 the average is 3.35%. The ten year average is 4.1%, the 20 year is 4.9% and the 30 year is 5.7%. Personal spending statistics are nominal, unadjusted for inflation.
Chief Market Strategist