Personal income grew 0.3% month-on-month (m/m) in March, equal to February’s growth and above market expectations for a more modest 0.2% m/m gain. Compensation of employees (+0.3% m/m) accounted for most of the growth, in addition to upticks in dividend and rental income.
Subtracting inflation and taxes, real personal disposable income rose 0.3% m/m in March, accelerating from 0.2% in February.
Personal consumption was unchanged from the previous month, falling slightly from 0.1% m/m in February. This was above the 0.1% decrease expected by the consensus. Services spending rose by 0.4% m/m, while goods spending fell by 0.6% m/m.
- Housing & utilities and health care were the largest contributors in the services sector.
- Declines in motor vehicles & parts and gasoline & other energy goods weighed on goods spending.
Adjusting for inflation, real spending was unchanged from February, above the consensus estimate for a 0.1% decline. In real terms, goods spending fell 0.4% m/m, while services spending rose 0.1%.
The personal consumption price deflator rose 0.1% m/m, and 4.2% on a year-on-year (y/y) basis – slightly above the expected 4.1% y/y reading but slower than the 5.1% y/y reading in February.
The Fed’s preferred measure of inflation – core PCE – rose 0.3% m/m. This was on par with expectations and equal to the 0.3% m/m uptick in February. On an annual basis, price gains decelerated to 4.6% y/y from the upwardly revised 4.7% y/y print the previous month. This was slightly above market expectations of 4.5% y/y.
The personal saving rate was 5.1% in March, above the upwardly revised 4.8% reading in February.
Key Implications
The first quarter’s spending came in at a 3.7% quarter-on-quarter (annualized) pace, cooling from the fourth quarter of 2022. January’s weather-induced bump in spending proved to be short-lived, as consumption growth has flat-lined over the past two months. Moving forward, we expect this to continue into the second quarter.
Inflation remains elevated as month-to-month movements in core inflation have failed to show a material shift downward, with the 3-month moving average holding at 0.4% in March. We expect that the Fed will opt to raise rates by 25 basis points at next week’s meeting before pausing to gauge the cumulative impact of policy tightening.
 in March, equal to February's growth and above market expectations for a more modest 0.2% m/m gain. Compensation of employees (+0.3% m/m) accounted for most of the growth, in addition to upticks in dividend and rental income.){kind=link}