US: Personal income rose at a solid pace, spending growth modest - Nomura

Analysts at Nomura note that the US personal income rose a healthy 0.4% m-o-m in February, after a 0.4% gain in January as wages and salaries rose 0.5%, after climbing 0.6% in January.

Key Quotes

“The savings rate increased to 3.4% in February, after it had jumped to 3.2% in January from 2.4%, likely driven by a technical factor.”

“Personal spending rose at a modest 0.2% m-o-m in February, matching our and markets’ expectations, after a 0.2% gain in January. Spending on durable goods rebounded by 0.2%, but spending on autos and parts fell 0.6%.”

“Although nominal spending growth looks steady, after adjusting for inflation, real spending appears weak. It remained flat in February, and January was lowered to a 0.2% decline from a 0.1% decline. The weakness so far in Q1 highlights the dichotomy between elevated consumer sentiment and personal spending.”

“One possible factor behind this weakness is the slower-than-usual tax refunds in 2018. The pace of tax refunds in 2018 thus far has been close to that in 2017, but slow by historical standards. Consequently, it is likely that tax-refund-induced demand has not fully materialized yet, confounding seasonal factors. Moreover, delayed refunds may have offset increased disposable income from lower withholdings. That said, late arrivals of refunds could boost spending later in Q1 or early in Q2. Although we continue to expect the strong job market and the recent tax cuts to support personal consumption in the coming quarters, continued weakness in personal consumption may raise the risk that the slowdown in Q1 is not transitory.”