The Bureau of Economic Analysis (BEA) said that personal income and spending growth eased in March. Personal income rose just 0.2 percent in March, below the 1.1 percent gain seen in February. Wages and salaries were 0.2 percent higher, with manufacturing sector wages edging slightly lower from $759.6 billion in March to $759.3 billion in February. While compensation among manufacturers is higher than at the end of 2012, the current stalling is a testament to recent weaknesses in the sector. The other notable element for personal income was the the interest income, which has fallen 1.2 percent for three months straight.
Meanwhile, the personal spending data illustrate why the manufacturing sector’s activity levels have been slower recently. While personal spending increased 0.2 percent in March, purchases of goods declined 0.8 percent. Durable goods spending was off 0.2 percent; whereas, spending on nondurables decreased 1.1 percent. At least part of the decline in nondurable goods could be due to lower energy prices in the month, which were down 2.7 percent. Nonetheless, this data show that consumers were more hesitant to purchase goods in March in general, with service sector spending being the exception, up 0.7 percent.
With personal income and spending increasing at the same pace, the savings rate remained at 2.7 percent in March. This figure has been highly volatile over the past few months, rising in November and December before the fiscal cliff deal and then plummeting afterwards. This was mainly due to the acceleration of payouts from businesses in advance of the fiscal cliff potentially occurring, as we noted last month. Overall, the savings rate still remains below its average in 2012 of 3.7 percent, suggesting that Americans continue to dip into the savings to make some purchases.
Lastly, this report also shows that higher taxes are eating away at least part of the increase in personal income. Personal tax expenditures rose 0.7 percent in March, building on the 1.1 percent increase in February. This is consistent with higher payroll and income tax rates in 2013.
Chad Moutray is chief economist, National Association of Manufacturers.