Real Wages and Salaries Advance 0.2%, Utilities Drive Modest Spending Growth

In nominal terms, personal income increased $30.9 billion, or 0.2 percent and, after taxes, disposable personal income (DPI) increased $20.7 billion, or 0.2 percent, in March, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $21.0 billion, or 0.2 percent. In real terms, disposable income increased 0.3 percent in March. This reflects inflation that fell 0.1 percent in March for all items. Low inflation makes the job of the Fed easier in continuing its bond-buying program. The Fed meeting is Tuesday and Wednesday of this week. After adjusting for inflation, real PCE – PCE adjusted to remove price changes – increased 0.3 percent in March, the same increase as in February. Purchases of durable goods decreased less than 0.1 percent in March. Purchases of nondurable goods decreased 0.4 percent. Purchases of services increased 0.6 percent. Note that most of the increase in consumer spending was on utilities, likely related to cold weather. The category that includes utility consumption increased 1.2 percent in real terms. Without utilities, consumer spending was flat in real terms. Other categories of spending were mixed, but suggested some consumers were eating more at home and dining out less. Consumers also spent less on automobiles, although the purchases of the number of new cars remained strong, based on data from industry sources. They also bought more home furnishings, likely related to the increase in home sales as we see from other data. Consumer incomes probably don't support sustained, strong increases in consumer spending. Private wage and salary disbursements increased $14.9 billion in March, compared with an increase of $44.6 billion in February. That said, the March, February, and January levels of private wages and salaries were reduced by $15.0 billion (at an annual rate), reflecting the impact of accelerated bonuses in November and in December of 2012 in anticipation of changes to individual income tax rates. For incomes, in nominal terms, goods-producing industries' payrolls decreased $0.1 billion in March; manufacturing payrolls decreased $0.3 billion. Services-producing industries' payrolls increased $15.0 billion. Meanwhile, government wage and salary disbursements increased $0.4 billion. What is most concerning is the lack of wage gains. In nominal terms, wages and salaries increased 0.2 percent. However, the dip in inflation in March did help consumers' buying power. However, we will need to wait for coming months for a clearer read due to the aforementioned distortions of the timing of year-end bonuses. Proprietors' income increased $8.8 billion in March. This increase was mostly due to farm income rather than other businesses' incomes. Farm proprietors' income increased $6.3 billion in March, the same increase as in February. Nonfarm proprietors' income increased $2.5 billion in March, a much smaller increase than in February. Small business incomes that were virtually unchanged in percentage terms – even with lower inflation that theoretically should help their profit margins – are an early barometer of the health of the broader domestic economy. Rental income of persons increased $9.5 billion in March, similar to gains in February. Dividend and interest income decreased $7.3 billion, in contrast to an increase of $68.2 billion. The February change in personal dividend income reflected a rebound from January. The level of personal dividend income was reduced by $81.0 billion in January, resulting from accelerated and special dividend distributions paid in November and in December. Personal saving – DPI less personal outlays – was $329.1 billion in March, compared with $330.9 billion in February. The personal saving rate – personal saving as a percentage of disposable personal income – was 2.7 percent in March, the same as in February. In decades past, the savings rate had been in the range of eight to ten percent, illustrating the aspect of stagnant incomes that force lower retirement and other savings in order to maintain spending. An increase in the savings rate would be a drag on economic growth, however, as what is saved cannot be spent.