Lower income/spending in Feb not a concern. But 12 months of COVID World has major changes

As December’s stimulus bill faded, we saw US income and spending totals regress back toward where they were at the end of 2020.

Personal income decreased $1,516.6 billion (7.1 percent) in February according to estimates released today by the Bureau of Economic Analysis (tables 3 and 5). Disposable personal income (DPI) decreased $1,532.3 billion (8.0 percent) and personal consumption expenditures (PCE) decreased $149.0 billion (1.0 percent).

You will see all of that “decline” in income came from stimulus payments being recorded in January, and no stimulus going out in February. But the down side of this is that wages and salaries were flat in February, which leaves us below the total of wages and salaries that we had in February 2020 – before inflation is accounted for, mind you.

The spending side offers more proof that the severe weather of February and dropoff of stimulus measures led to a slight drawback in the economy. But the $149.0 billion decline in spending for February is almost entirely offset by a $147.0 billion upward revision for January.

It indicates that the stimulus checks had a significant effect, although some of the gain was due to the COVID World reducing the usual post-Christmas dropoff in spending (this is also reflected in November’s and December’s “declines” in spending).

It portends good signs for March, with a new round of stimulus checks (for most people, anyway), warming weather, and a bump up in consumer confidence. But let’s not forget that there is still a big COVID-influenced hole to get out of, especially for many services industries.

Some of the service industries have finally gotten federal support in recent weeks (if they didn’t go out of business already), particularly the live music and restaurant industries, but there’s still a long way back to the pre-COVID World for these places.

On the flip side, the BEA’s blog summarizing the income and spending report has this interesting chart, which illustrates how spending on most goods (outside of oil/gas) has gone UP in the COVID World.

It will be interesting to see if this COVID World change in spending habits unwinds in the coming months, as more people get vaccinated and the weather warms. And to see if the new Recovery Plan Act will make for a more permanent rise in spending and economic activity, or if it fades after a few months.

The Recovery Plan also makes today’s report a bit dated, but it does give us information on what a year in the COVID World has done to the largest portion of the economy – individual workers and their related consumer spending. And where to look for signs of success or shortfall as the Biden stimulus takes hold.