The Bureau of Economic Analysis (BEA) said that personal income grew 1.1 percent in February, coincidently the same pace experienced in November. In between those two months, there was tremendous volatility in the data because several businesses chose to accelerate payouts with the threat of the fiscal cliff looming. The result was a 2.6 percent boost in personal income in December, followed by a 3.7 percent drop in January. Starting with this February release, we should be able to return to more-normal trends.
Wages and salaries rose 0.6 percent in February, suggesting decent growth in employee compensation for the month. For manufacturers, wages and salaries increased from $749.8 billion in January to $758.3 billion in February. This continues a steady rise in manufacturing compensation. In the first quarter of 2012, for instance, total manufacturing wages and salaries were $723.1 billion, and it had been $708.3 billion in the first quarter of 2011.
Meanwhile, personal spending was up a relatively strong 0.7 percent in February, the fourth consecutive month of gains. This suggests – at least for now – that consumers have continued to make purchases, even as consumer confidence data has waned on higher payroll taxes and other factors. The largest growth in spending came in the nondurable goods sector, which was up 1.9 percent.
This is somewhat consistent with retail sales data for February from the Census Bureau released earlier in the month, which found strong growth mainly attributable to higher gasoline prices and healthy auto sales. One difference perhaps was that durable goods spending was unchanged in this latest report, so if motor vehicle sales were robust, it might have been counteracted by other sectors. The personal spending data from BEA do not provide a breakdown for us to be able to make that determination.
With personal income growth outstripping personal spending, the savings rate rose from 2.2 percent in January (its lowest point since August 2007) to 2.6 percent in February. The savings rate was 6.5 percent in December, but that figure was skewed by accelerated dividends and other payouts made that month. The average savings rate in 2012 was 3.9, or 3.7 percent if December’s outlying value was excluded.
Chad Moutray is chief economist, National Association of Manufacturers.