Income and spending report
The Personal Income and Outlays reports is a monthly release by the BEA (U.S. Bureau of Economic Analysis). It gives insights into the change in wages and salaries as well as spending by individuals. The outlays, or spending, also include interest payments on loans—except housing—apart from spending on goods and services.
An increase in income gives people incentive to spend. This is reflected in an increase in personal outlays, or PCE (personal consumption expenditures). With more disposable income, people will likely buy either fast moving consumer goods or durable goods.
Consumer spending remained subdued in February 2015. The harsh weather kept consumers indoors. Individuals also decided to use the gains from lower gasoline prices to boost their savings.
Real PCE, or consumer spending, rose by $11.8 billion or 0.1% in February. It fell by a downwardly revised 0.2% pace in January. Earlier, it was reported as a 0.3% rise. Spending on non-durable goods fell sharply by 2.5% month-over-month in January. It rose by 0.4% in February. However, spending on durable goods rose by 0.4% in January. It fell by 1% in February.
Inflation-adjusted consumer spending fell 0.1% in February. This was the first fall since April 2014. It followed a 0.2% rise in January.
Since consumer spending forms ~70% of the US economic output, a reduction or meager growth in spending indicates potentially slow growth in the economy. An increase in consumer spending benefits ETFs like the Consumer Staples Select Sector SPDR Fund (XLP) and the Consumer Discretionary Select Sector SPDR Fund (XLY). However, since consumers mostly stayed indoors, utilities companies—like NextEra Energy (NEE), Dominion Resources (D), and Southern Company (SO)—benefited due to higher spending on energy.
Personal incomes rose by 0.4% in February 2015. They rose by the same pace in January 2015. Overall, wages and salaries rose 0.3% month-over-month. However, wages and salaries in the manufacturing sector remained nearly flat. In contrast, services industries showed a rise of 0.4% in wages and salaries in February.
For disposable personal income, personal taxes are subtracted from personal income. Disposable personal income rose 0.4% in February. It rose by 0.5% in January.
Due to just a small rise in consumer spending, personal savings—as a percentage of disposable personal income—was 5.8%. This was the highest since December 2012.
PCE inflation rebounds
The PCE price index measures inflation. It rose by 0.3% in February—compared to a 0.2% pace in January. This pace was measured against the index reported a year ago. The PCE price index rose because the index for energy goods and services slowed its fall to a 19.9% pace—compared to 21.2% in January.
The core PCE price index excludes food and energy. It also increased to a 1.4% pace in February. It had a 1.3% pace in January.
In the next part of this series, we’ll look at the pending home sales report for February 2015.