After declining in both January and February, consumer spending bounced solidly in March, rising 0.4 percent. Personal income rose slightly less, climbing 0.3 percent, causing the saving rate to slip back to 3.1 percent.

Consumer Spending Looks Set to Perk Up This Spring

First quarter real GDP data had already revealed that consumer spending fell into a bit of a winter slumber during the first quarter. This March data reveal how spending ended the quarter and provide a look into how muchmomentum consumer spending is likely to carry into the second quarter.

- advertisement -

Real personal consumption outlays declined in both January and February, dipping 0.1 and 0.2 percentage points, respectively, before rebounding 0.4 percent in March. With all the strength coming at the end of the quarter, real personal consumption expenditures would come close to matching their first quarter’s paltry 1.1 percent pace even if outlays were unchanged in April, May and June. Such an outcome seems unlikely, however, given the strong Q1 pace of job growth, persistently strong readings in consumer confidence, and the arrival of warmer spring weather and tax refunds. Our current forecast calls for outlays to rise at a 2.9 percent pace in Q2, which would require monthly gains in the 0.2 to 0.3 percent rate over the nextthree months.

Early assessments of the first quarter GDP numbers made light of the lack of spark from tax cuts in the consumer spending data. The tax cuts are fairly recent and did trigger a large 0.9 percent gain in the disposable index during January. The bulk of the impact from tax reform is still likely ahead of us, however. Withholding schedules were changed in February and the immediate impact on consumers has likely been fairly small. Larger paychecks will add up over time. Recent consumer surveys show a notableincrease in buying plans for homes, motor vehicles and major appliances.

Consumers should have the wherewithal to boost spending this spring. Wages and salaries rose at a 5.6 percent pace in the first quarter, which was the strongest pace in a year. Wages and salaries ended the quarter on a soft note, however, rising just 0.2 percent. The smaller gain is consistent with the disappointing rise in nonfarm payrolls that month. The monthly data have likely been a little more volatile this year, with harsh winter weather lingering over much of the Northeast and Midwest a little longer than usualand likely keeping consumers indoors during the early part of spring.

Even though the headline PCE deflator was unchanged in March, the yearto- year change ramped up to 2.0 percent in March from 1.7 percent previously. Overall, prices had been held back by lower energy prices and the adoption of unlimited data plans for smartphones. This marks the first time the year-to-year change in the PCE deflator has reached 2.0 percent or more since February 2017. More importantly, the headline PCE deflator has risen at a 2.4 percent pace over the past three months. The core PCE deflator rose 0.2 percent in March and is up 1.9 percent year to year. Both figures are likely to be reflected in the Fed’s policy statement later this week, but are not at thepoint where they would trigger a more aggressive policy response.

Previous articleJapanese Yen Dips, BoJ Removes Inflation Timeframe
Next articleRBA Meeting: Neutral, With a Hint of Caution?
Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A, Wells Fargo Advisors, LLC, and Wells Fargo Securities International Limited. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company © 2010 Wells Fargo Securities, LLC.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.