The Bureau of Economic Analysis said that personal income and spending bounced back in January after weaknesses seen in December. Consumer spending rose 0.4 percent in January after increasing just 0.1 percent the month before. Year-over-year growth in personal spending also edged higher, up from 3.2 percent to 3.45 percent, its fastest pace since December 2012. Nonetheless, the news was not as good for manufacturers as the headline figure might suggest.
The increase in spending in January stemmed entirely from services, up 0.9 percent for the month. In contrast, durable and nondurable goods spending were both lower, down 0.3 percent and 0.7 percent, respectively. It was the second consecutive monthly decline for durable goods spending, which declined 2.6 percent in December. It is likely that poor weather conditions negatively impacted these figures, with other releases showing weak spending for automobiles and other items over these two months.
Meanwhile, personal income increased 0.3 percent in January, an improvement from being unchanged in December. Total wage and salary disbursements were up 0.2 percent for the month, or 3.6 percent over the past 12 months. For manufacturers, wages and salaries have been essentially flat over the past three months, hovering around $758 billion. The figure has gradually moved higher over the longer-term, however. Six months ago, wages and salaries in the sector were $742.5 billion, and they have moved up from averages of $707.1 billion and $735.4 billion in 2011 and 2012, respectively.
The savings rate remained at 4.3 percent in January for the second straight month, and we have generally seen this rate decelerate over much of the past year. For instance, the savings rate dropped from an average of 5.3 percent through the first 11 months of 2012 (omitting December because of accelerated payouts due the fiscal cliff) to 4.5 percent in 2013.
Overall inflationary pressures remain minimal, with prices for core personal consumption expenditures (PCE) up just 1.1 percent year-over-year. Energy prices were up 0.4 percent in January, or 3.5 percent over the past 12 months, as more Americans needed to heat their homes due to cold weather conditions. Nonetheless, inflation remains below the Federal Reserve’s 2 percent target rate, which frees the Fed up to pursue its highly accommodative policies.
Chad Moutray is the chief economist, National Association of Manufacturers.