The long awaited consumer-spending figures

Hello everyone,

Today saw the release of the long-awaited (by me) February consumer-spending figures.  The Commerce Department stated that U.S. consumers increased their spending by 0.3% in February.  Meanwhile, personal incomes were flat.  So what that means is that people must have increased their spending by reducing savings or by increasing their debt.  However, on average, people increased their spending by reducing savings as the savings rate fell 0.3% to 3.1%.  Lastly, inflation, as measured by the consumer price index, was up 1.3%.

So, in summary, consumer spending was up 0.3% which was paid for, not by an increase in wages, but by reducing savings and not increasing debt.  That 0.3% increase was less than the rate of inflation of 1.3%.

Analysis: As loyal readers of the blog know, I have been nervous about the huge 18% plunge in consumer confidence last month.  I have been wondering to what degree consumer spending would match that fall in confidence.  Interestingly enough, consumer spending was negative by 1.0% if you figure in inflation.  Calculated as: 0.3% increase in consumer spending – 1.3% increase in inflation = -1.0% real increase in consumer spending.  That is, each consumer has a certain amount of goods and services they have to buy; like food and shelter.  These goods are bought by folks regardless of economic conditions.  So for consumer spending to stay even it would have to match the rate of inflation, which it didn’t.  So consumer spending did fall as adjusted by inflation.

In summary, we have an increase in inflation, a decrease in consumer savings, a real decrease in consumer spending, and flat wages.  What’s more, inflation exceeded all three measures.  That means that the U.S. consumer feels more poor now than they did a month ago.  These slightly negative statistics do not bode well for the economy.

Importance grade: 9/10; this collection of data are the very most important data in the economy right now next to the unemployment rate.  None of the data are either the direction (positive or negative) or magnitude that investors would  prefer.  What’s more, the unemployment rate remains stubbornly high.  In other words, the economy is still treading water as measured by its most important measurements.  For GDP to be up in the first quarter, ending March 31, it will have to be because of big increases in business investments and government spending.  I am guessing that we are going to have tepid growth in GDP.  Not good.

Jason