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US Personal Income, Spending and Inflation

Posted by Joseph Trevisani on Apr 29, 2013 11:40:00 AM

American consumer spending rose unexpectedly in March even as income stagnated beset by higher taxes and weak labor markets.

Personal consumption increased 0.2% last month according to the Bureau of Economic Analysis of the Commerce Department in Washington. Economists had forecast a flat month.  The prior month was unrevised at 0.7%. 

Personal income gained 0.2%, half the prediction and less than a fifth of the 1.1% boost in February. With income matching spending the saving rate was unchanged at 2.7%. Except for the January rate of 2.3% it was the lowest ratio of saving to income since December 2007.

After correcting for inflation spending rose 0.3% in March the same as in the prior month. Both income and spending figures were part of the 2.5% annualized first quarter GDP number released on Friday and had little market impact.

Income has been on a roller coaster since the year-end tax hike pulled dividend and bonus payments into December pushing them 2.6% higher that month and then plunging 3.6% in January, the largest monthly drop since 1993.

Income was 2.5% higher on the year, and, except for the aftermath of the last two recessions it was the lowest income growth in 50 years.

The Personal Consumption Price Index (PCE) fell 0.1% in March as expected, the first drop since November. Over the year prices rose 1.0%, the slowest gain since the recession.

The core PCE index was flat on the month, below the 0.1% forecast and February's 0.1% gain.  Year on year inflation slid to 1.1% from 1.3% in February, below the 1.2% median estimate.

With core inflation well below the Federal Reserve 2.0% target the central bank has no price constraints on its $85 billion a month of security purchases.

Joseph Trevisani

Chief Market Strategist


Charts: Bloomberg

ScreenHunter 1031 Apr. 29 12.54

ScreenHunter 1032 Apr. 29 12.55 

ScreenHunter 1033 Apr. 29 12.56


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