Personal income was strong in March, up 0.5 percent, with an upward revision to 0.4 percent in February. Personal consumption expenditures surpassed all expectations by posting a 0.9 percent increase
Personal Income Remained Strong in March
Personal income increased a stronger-than-expected 0.5 percent in March. The February increase was revised up to 0.4 percent from an originally released 0.3 percent. Disposable personal income increased at the same rate as personal income, while real disposable personal income rose 0.3 percent in each month of the first quarter. The increase in personal income in March was mostly due to strong improvement in private wages & salaries. Private wages & salaries increased $42.3 billion in March, compared to only $17.4 billion in the previous month. The biggest difference during the month was seen in service-related industries whose payrolls increased $31.8 billion, up from $9.9 billion in February. Manufacturing payrolls also improved considerably in March, growing $7.0 billion versus an increase of only $1.6 billion in February, reflecting the severe winter weather during the first of the year. However, the bigger story in March was personal consumption expenditures.
Personal Consumption Expenditures Surge in March, Quarter
Personal consumption expenditures remained strong as healthcare expenditures, due to the implementation of the Affordable Care Act (ACA) and stronger consumption in other services, pushed first quarter spending above market expectations. Personal consumption expenditures surged 0.9 percent in March, capping a very strong first quarter for the U.S. consumer. After a slow January, consumption picked up the pace in both February and March. Besides the jump in March consumer spending, February’s originally-reported 0.3 percent increase was revised up to 0.5 percent. While real spending was up only 0.1 percent in January, it rebounded to 0.4 percent in February and 0.7 percent in March.
Today’s release is just a confirmation of yesterday’s strong estimate of real PCE from this week’s GDP report, which came in at 3.0 percent on an annualized basis during the first quarter of the year, compared to a 2.0 percent market estimate. In that report, we saw that consumption of services increased at an annualized rate of 4.4 percent during the first quarter versus a growth rate of only 0.4 percent for the consumption of goods. Going forward, our expectation is that expenditures in healthcare due to the rollout of the ACA will continue to be a major driver of personal consumption expenditures during the second quarter and will continue to have a lesser, but still positive, effect on PCE during the second half of the year. Higher consumption during the first quarter has been partially financed with a decrease in the rate of savings. Personal saving was only $487.7 billion in March versus $529.4 billion annualized rate in February.
Wells Fargo