Despite snow, Americans kept spending

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.

MARKETS AND FED POLICY IMPLICATIONS: The early signs that the recovery is indeed poised to change gears will be seen in the income numbers and there are hints that pay is finally on the rise. Disposable income is growing more rapidly, though we really do need much better wage and salary gains if spending and overall growth is to truly strengthen. The key will be the tightening in the labor market and if the jobless gains data are any indication of conditions, that is happening. Jobless claims went below 320,000 for the past four weeks and are near what they were averaging in the fall of 2007. The unemployment rate was in the mid-4s at that time. I suspect that the continuing improvement in the claims and other labor market data is sustainable but we will find out about jobs next Friday, April 4th. Don't be surprised if payrolls surge and the unemployment rate drops. That would be followed over the coming months by better wage and salary increases. So the winter may have slowed things temporarily, but with consumers still spending and incomes rising, we should see solid growth in the months ahead. Now if consumer confidence would only bounce back as well (The University of Michigan's March measure was down from the February reading), we would really be in good shape.

Joel Naroff is the co-author, with veteran journalist Ron Scherer, of the forthcoming book, "Big Picture Economics: How to Navigate the New Global Economy". Release date is April 21, 2014.