We’d seen several economic reports that indicated February wasn’t going to have the bad overall numbers that we saw in January. And that continued on Friday
with February’s release of the US's income and spending figures.
Personal income increased $194.7 billion (0.8 percent at a monthly rate) in February, according to estimates released by the U.S. Bureau of Economic Analysis. Disposable personal income (DPI)— personal income less personal current taxes—increased $191.6 billion (0.9 percent) and personal consumption expenditures (PCE) increased $87.8 billion (0.4 percent).
Personal outlays—the sum of PCE, personal interest payments, and personal current transfer payments—increased $118.4 billion in February. Personal saving was $1.02 trillion in February and the personal saving rate—personal saving as a percentage of disposable personal income—was 4.6 percent.
That sounds like an impressive jump in incomes, which you’d think would indicate a strong economy. But look further into the report, and you’ll see that more than half of the increase in February’s incomes were in the category of “personal transfer receipts”, and not wages and salaries.
So what kind of income is that?
• The increase in personal current transfer receipts was led by government social benefits to persons and other current transfer receipts.
o Within government social benefits, the increase primarily reflected premium tax credits for health insurance purchased through the Health Insurance Marketplace.
o The increase in other current transfer receipts was led by business payments to persons, reflecting settlements from a domestic medical device manufacturer and a social media company.
It’s one-time stuff from Obamacare tax credits and class-action settlements. Not something that was widespread among a large number of Americans.
Take out that “personal transfer receipts” figure, and incomes only went up by 0.46%. Still beating inflation, but not by much, as PCE inflation was up 0.32% in February and 0.36% in the core measure that excludes food and energy.
That PCE figure is what grabbed the attention on Wall Street, which began
a decline that got worse throughout the day, ending up with a loss in the DOW Jones Industrial Average of more than 700 points.
US stocks opened the day lower and began to slide as data from the Commerce Department showed inflation in February remained slightly sticky.
The Personal Consumption Expenditures index rose 2.5% year-over-year in February, unchanged from January and matching expectations. Yet the core PCE index, which strips out volatile categories like food and energy, ticked up to 2.8% year-over-year from 2.7% in January. That hotter-than-expected rise signals that inflation, while broadly cooling, remains above the Fed’s target of 2%.
Meanwhile, consumer sentiment tanked 12% this month, according to the University of Michigan’s latest survey released Friday.
The selloff gradually turned into a rout as investors dumped stocks in industries including technology, autos and airlines. Google slid 4.9%, Stellantis slid 4% and Delta Air Lines slid 5%.
The Atlanta Fed sure didn’t like the data it was getting on Thursday and Friday, as it dropped its GDP Now estimates to -2.8%, and even its “adjusted for the huge amount of gold imports in January” figure went negative.
What's remarkable is that the largest tariffs haven’t even hit yet, but inflation was already on rising in Trump 2.0’s first full month in office. In addition,
another report from late this week showed the large increase in the trade deficit for goods that we saw in January didn’t go down much in February, and was nearly $148 billion for the month.
That’s a clear front-running of the tariffs, and without a big pick up in spending on those goods, you have a recipe for serious cutbacks in the coming months. Those cutbacks might not affect Q1’s employment and growth numbers, but it sure could after that.
So does it look like we’re winning with the “businessman president” and his South African billionaire sidekick/owner in charge?
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