United States: spending and income increase, but inflation continues to weigh


Personal income rose 0.5% month-over-month (m/m) in February, in line with consensus expectations. January growth was revised up to +0.4% m/m from a flat reading. Compensation of employees (+0.6% m/m) remains the driver of income growth, with wages in both the private and public sectors rising.

Excluding the effect of price changes and taxes, real personal disposable income fell for the third consecutive month, down 0.2% m/m in February, while January’s decline was revised upwards. down to -0.2% m/m (from -0.3% reported earlier).

Nominal personal spending rose 0.2% m/m in February, below the consensus estimate (0.5% m/m). January growth of 2.1% m/m announced in the preliminary estimate has been revised to 2.7% m/m.

  • Spending on goods fell 1.0% m/m after an upward-revised growth of 6.5% in January (initially +5.2%). Spending on durable goods (-2.5% m/m) and non-durable goods (-0.1% m/m) declined, with the main drag coming from lower spending on motor vehicles and spare parts.
  • Services spending rose 0.9% m/m, while the January reading was adjusted to 0.7% m/m (originally +0.5%). The rise was largely attributed to spending on food services and accommodation.

In real terms, spending fell by 0.4%, slightly less than expected by the market (-0.2% m/m). Spending on real goods led the slowdown with a 2.1% drop. Real spending on services increased by 0.6%.

The PCE price deflator rose 0.6% m/m in February (as expected), translating to 6.4% y/y (as expected). Excluding food and energy, core PCE inflation rose 0.4% m/m (as expected) and 5.4% y/y (vs. 5.5% expected).

The personal savings rate fell from 6.1% to 6.3% in January.

Key implications

February exactly two years ago marks the “pre-pandemic” benchmark against which economists measured the COVID-induced economic shock and recovery. Compared to it, real consumption is now 4.6% higher, spending on goods up 15.6% and spending on services, which are still suffering from the effects of the restrictions, down 0.3%.

In an ideal world, consumers will shift their spending towards services, which will help reduce pressure on the prices of goods while keeping the economy going. Today’s release shows evidence of this reversal, which is expected to gather momentum in the coming months. Given the upward revisions, we expect real spending growth to be stronger than the 2.4% projected in our forecast.

Rising prices continue to erode consumers’ purchasing power, with growth in real disposable income declining for the seventh consecutive month. Consumers were able to buy more than they earn with substantial excess savings, which we currently estimate at $2.5 trillion. (down from a peak of nearly $2.7 trillion in September 2021). With the current reading of the Fed’s preferred measure of inflation (the PCE core price deflator) well above target, the risk of higher inflation taking hold becomes more real (see Dollars & Sense).


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