February 26, 2021 | 09:16
U.S. Personal Income and Consumption (Jan.) — Christmas in January
U.S. personal spending rose 2.4% in January, a bit lighter than expected, but an impressive start to the year nonetheless. Real spending jumped 2.0%, more than erasing the prior month's 0.8% decline, and now up 5.2% annualized so far in the quarter. Assuming further gains, we expect 6%-plus growth in Q1 consumer spending will drive a 5.0% increase in quarterly real GDP.
The January burst of spending was led by goods, with volumes up 5.1%. The gains were broadly based, led by recreational goods and vehicles...no doubt stoked by the $600 rebate cheques to most individuals. Real services spending rose a lesser 0.5%, led by restaurants as restrictions on outdoor dining were relaxed, and as well by health care, as people lined up for vaccines.
The rebate cheques and a $300 weekly UI payment top-up fueled a 10.0% leap in personal income, though a solid 0.7% advance in wages and salaries contributed. Most of the rebate cheques were socked away, spiking the saving rate to 20.5% from 13.4%. There's enough accumulated excess savings in aggregate during the pandemic to support three years worth of consumer spending growth.
On the surface, it looked like retailers took advantage of the spending frenzy to hike prices. Core PCE prices unexpectedly popped 0.3% (0.252%) for a second straight month (contrasting with a flat core CPI last month). However, just over two-thirds of the core price increase stemmed from a 1.04% leap in health care services prices, which contributed to 0.174% of the monthly increase. The yearly core rate rose a notch to 1.5%, right in line with its six-month trend. Despite the special factor, the two-month annualized advance of 3.4% in core prices might rattle nervous bond markets. The core PCE rate is now above the core CPI rate for the first time in a decade, which will catch the Fed's attention, though it's still a long way from moving above the 2% target, as now desired. Still, core inflation will sprint higher in coming months due to low base effects, making things interesting for policymakers (and bond markets).
Also out this morning, the U.S. goods trade deficit rose slightly to $83.7 billion in January, with exports up 1.4% and imports rising 1.1%. Trade will subtract again from quarterly growth, but there's more than enough fuel on the consumer (and business) spending front to stoke growth.
Overall, an impressive start to the year for American households, and there's more goodies to come from Santa Congress.