Cool Reports but no Backsliding, Labor Data Solid
- U.S. Personal Income increased by 0.3 percent in January as wage income gained 0.4 percent.
- After inflation and taxes, Real Disposable Income decreased by 0.1 percent in January.
- Personal Consumption Expenditures increased by 0.2 percent for the month.
- The PCE Price Index gained 0.2 percent in January. The core PCE Price Index also gained 0.2 percent.
- The ISM Manufacturing Index for February ticked down to 52.4 percent, still a positive number.
- Construction Spending in January declined trivially by 0.1 percent.
- Initial Claims for Unemployment Insurance dipped by 2,000 to 351,000 for the week ending February 25.
Total personal income increased by 0.3 percent in January after a strong 0.5 percent gain in December. Wages increased moderately, by 0.4 percent, for the second straight month. Rental income continued to grow strongly, as it has since mid-2011, increasing by 0.9 percent in January. Personal taxes took a big bite out of income in January, increasing by 1.6 percent. Inflation took another bite, as the PCE price index gained 0.2 percent for the month. The core PCE price index (less food and energy) also gained 0.2 percent. After inflation and taxes, real disposable income fell by 0.1 percent in January, keeping a lid on spending. Nominal consumer spending increased by 0.2 percent. After inflation, real consumer spending was unchanged in January. Spending on services accounts for about two-thirds of all consumer spending. A warm January combined with soft natural gas prices kept utility bills light and that is a likely culprit in the weak spending on consumer services for the month. The goose-egg in real consumer spending for January is a negative for real GDP growth in the first quarter. Perhaps consumers will make up for lost time in February and March. A strong stock market rally and improved consumer confidence are positives for consumer spending in February. Higher gasoline prices are a negative. The personal saving rate series has been revised upward. The January saving rate stands at 4.6 percent. The trend now looks flat, near 4.5 percent through the second half of 2011, whereas previously the saving rate was on a declining trend through the second half of 2011.
The ISM manufacturing index for February ran counter to a strong Chicago PMI and strong manufacturing reports from the Dallas Fed and the Richmond Fed, and fell from 54.1 in January to a still decent 52.5 in February. The biggest drag came from supplier delivery time. Faster deliveries imply looser manufacturing conditions. A positive note was struck by new orders for exports, which jumped from 55.0 in January to 59.5 in February, despite cooler global macroeconomic conditions. Construction spending in January was essentially unchanged, dipping by 0.1 percent. Gains in private residential were offset by losses in private nonresidential and in public construction. Initial claims for unemployment insurance fell by 2,000, to hit 351,000. Claims in the range of 350,000 imply payroll job growth in excess of 200,000 per month. Ongoing losses in government employment may hold the February payroll total near 200,000. A correction in the household employment series may leave the unemployment rate for February unchanged at 8.3 percent.
Market Reaction:U.S. equities markets opened with gains. U.S. Treasury yields are up at both ends of the yield curve. Oil is up to $107.87/barrel. The dollar is down against the euro and down the yen.