INDICATOR: February Income and Spending
KEY DATA: Consumption: +0.3%; Disposable Income: +0.3%; Prices: +0.1%
IN A NUTSHELL: "If this is winter-constrained spending, I cannot wait to see what happens when people can actually leave their homes."
WHAT IT MEANS: Did the winter knock the economy for a loop or have all of us, that is, economists, overreacted? Good question. In some cases, such as the housing market, it looks like the cold and snow really mattered. But on the consumption side, the data don't show a huge impact. Spending in February rose solidly, after a somewhat tepid gain posted in January. This occurred despite a decline in durable goods purchases. Vehicle sales were hurt by the weather and I suspect the demand for other big-ticket items also took a hit as people just didn't go out. Meanwhile, consumption of nondurables and services improved solidly. We did have to heat out homes and that may explain some of the rise in services. On the income side, real disposable income, which is the money we have left over after taxes and inflation are factored in, increased moderately. In 2013, that key number was up only 0.7%, hardly enough to allow people to shop 'till they drop. That consumption was up 2% raises the question whether the spending gains can be sustained. The answer is yes. Between February 2013 and February 2014, the rise in real disposable income was 2.1%, so people seem to be getting more money. As long as inflation remains in check, and the price index rose only 0.1% both including and excluding food and energy, it looks like household spending power just may finally be accelerating.