Monday, April 30, 2018

Even with tax cuts, income and spending are no different so far

I mentioned over the weekend that today's release of US spending and income numbers for March would be notable. It would give us an idea if the economy was accelerating at the end of the 1st Quarter, or if things were on the upswing as that quarter ended, and it might give us an idea which way any revisions to 2.3% GDP growth might go.

If you isolate today’s personal income and spending report to March, it looks like spending and incomes went up at a solid pace.
Personal income increased $47.8 billion (0.3 percent) in March according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $39.8 billion (0.3 percent) and personal consumption expenditures (PCE) increased $61.7 billion (0.4 percent).

Real DPI increased 0.2 percent in March and Real PCE increased 0.4 percent. The PCE price index increased less than 0.1 percent. Excluding food and energy, the PCE price index increased 0.2 percent.
Given that slow consumer spending was a problem in Friday’s GDP report, seeing that 0.4% increase in PCE is a welcome change if you want to see growth pick up. The 0.2% increase in real disposable income also should keep consumer spending going in the short term.

But then you look at the revisions that the report had for January and February, and things don’t look so hot.

Revisions to spending and income report
January 2018
Personal income -$10.5 billion
Disposable income -$13.4 billion
Consumption expenditures +$11.4 billion

February 2018
Personal income -$10.2 billion
Disposable income -$11.3 billion
Consumption expenditures -$26.3 billion

Which means that we started from a lower number than we previously knew for these stats. If you use the numbers from last month’s income and spending report as a base, the increases in March don’t look so great.

March 2018 spending and income vs unrevised totals Feb 2018
Personal income +0.2%
Disposable income +0.1%
Consumption expenditures +0.3%

In other words, much of the “increase” in income that hit in March merely got us back to where we already thought we were in the previous 2 months. So at least for the first 3 months of 2018, these stats showed little to no boost from the GOP’s tax cuts, other than a one-time increase in disposable income in January (when the lower withholdings from the tax cuts were registered).

What the income and spending figures don’t indicate is that wages are being increased any more than they were in the past. In fact, after three straight months of good gains in wages and salaries at the end of 2017 and January 2018, those increases declined in both February and March, with March having the smallest gain in 10 months.

So to anyone who thinks lower tax rates on employers might be “trickling down” into higher wage growth for the first three months of 2018, the answer is “not yet.” And if history is any indication, the second part of that answer is likely "not ever."

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