U.S.: Personal Income and Spending Worsen in March

• U.S personal income for March was worse than expected, as it fell 0.3% M/M.
• Personal spending was also weaker than anticipated as it fell 0.2% M/M in March, but the prior month was revised higher.
• The savings rate in the U.S. continues to creep higher. In March it was 4.2%, compared to 4.0% in February.

The U.S. personal income and spending data was generally weaker than expected. Income fell 0.3% M/M and is up only 0.3% on a year ago basis. Personal spending was down 0.2% M/M, and fell 0.9% Y/Y. This is the first monthly decline in three months, but also the seventh monthly decline in nine months. In real terms, personal consumption expenditures were down 0.2% M/M, and this was the first monthly contraction since December 2008. The inflation optics contained in the data showed an overall gain of 0.2% M/M. On a three month annualized trend, the core PCE deflator was 2.3%, up from 1.5% in February. However, there was a much smaller rise in the six month annualized gain in core PCE. That metric rose to 1.3% in March, compared to 1.2% in February. In either case, it appears that there were some price pressures in March.

About the only personal consumption expenditure category to post any gains at all was services, which posted a scant 0.06% M/M gain in March. Spending on durables and non durables were down 0.7% M/M, and 0.8% M/M, respectively. As such, consumers seemed to have shied away from buying goods all together, and seemed to spend only on the absolute essential services.

The savings rate also ticked higher to 4.2% in March, from 4.0% in February. This average savings rate for the first quarter is now 4.2%. This is not quite as high as the special effect last May when most consumers appeared to have socked away the money from the fiscal stimulus package, but it clearly shows consumers are now (finally) saving after years of free spending.

Today's data does not particularly change the view in any way. We know that the consumer remains backed into a corner and any ‘green shoots' of improvement on the consumer front might be short lived as the labour market continues to contract and equity markets only slowly regain their bearings. As such, we can expect further softness in these data in the coming months.

TD Bank Financial Group

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