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.

Here is the summary from this week’s Monday Economic Report:

According to the latest economic data, U.S. manufacturers are seeing slow-to-decent progress in their businesses. While there continue to be challenges, many of the regional Federal Reserve Bank surveys reported continued expansion, even if the pace of growth might have slowed. The Dallas Fed survey has grown for four straight months on higher sales and production data, and businesses in the region were overwhelmingly positive about future activity over the coming months. At the other end of the spectrum, the Kansas City Fed’s composite index has contracted for six consecutive months. Both new orders and shipments were unchanged in February after falling sharply in January, and respondents tended to echo some of the frustrations of businesses in the area. Frequent concerns ranged from uncertainties about the economy to concerns about healthcare costs. Even in the Kansas City report, though, manufacturers expressed cautious optimism about the next six months – a constant sentiment across all the surveys.

This morning, we will get the latest read on the manufacturing sector from the Institute for Supply Management (ISM). The ISM purchasing managers’ index is expected to show a very modest gain in activity in March, following the survey’s uptick from 53.1 in January to 54.2 in February. Sales should drive the index higher, but other data show that these gains have been somewhat spotty lately. The Census Bureau’s advance estimates for new durable goods orders rose a very strong 3.6 percent in February, but this followed a 3.8 percent loss in January. Much of the volatility in that indicator has been due to the ups and downs in aircraft orders. Removing the transportation sector from of the analysis would have yielded a decline in new orders.

Motor vehicle demand appears in several of the indicators released last week. The durable goods report indicates that auto sales increased by a very robust 3.8 percent in February, and a rebounding motor vehicle sector helped to lift the Chicago Fed’s Midwest Manufacturing Index. Year-over-year production in the auto industry in the Chicago Fed District was up 15.2 percent, a strong figure that helps explain why the Midwest has fared so well since the end of the recession. These indicators were also consistent with analysis from a couple weeks ago that showed retail sales gains largely due to increased auto purchases and higher gasoline prices.

On the consumer front, personal incomes were up 1.1 percent in February. Spending increased 0.7 percent. The nondurable goods sector benefited the most from the increased spending. The sector was up 1.9 for the month. Manufacturing employees, meanwhile, benefitted from the pickup in activity through higher total wages and salaries. At the same time, the two consumer sentiment surveys out last week moved in opposite directions. The Conference Board’s report dropped significantly over jobs and income concerns. Respondents also cited across-the-board federal spending cuts as a factor. The University of Michigan’s consumer confidence figure reversed an earlier estimate and found the public more positive than the month before, with its index rising for four straight months. The update from the initial report suggests that some of the concerns about the economy in many of the earlier responses might have dissipated as the month progressed.

Aside from the ISM report, other economic highlights due out this week include the latest figures on employment and international trade. Nonfarm payrolls are expected to increase by around 200,000 in March, indicating reasonable job growth last month just shy of the 236,000 net new workers added in February. Manufacturing hiring growth should also closely mirror the previous month’s report. On the trade front, we will be looking to see whether recent improvements in many of our largest markets – with the notable exception of Europe – will lead to increases in exports of manufactured goods.

Chad Moutray is the chief economist, National Association of Manufacturers.

With the threat of the fiscal cliff looming, many businesses began thinking about the tax implications of going off of the cliff, and they adjusted their payouts accordingly. As proof of this, the Bureau of Economic Analysis (BEA) said that personal income soared 2.6 percent in December, building on the 1.0 percent gain in November.

Digging deeper into the data, it is clear that many companies pushed up their dividend payouts to avoid possible higher taxes in 2013. (As part of the fiscal cliff deal enacted on January 2, 2013, dividend taxes went from 15 percent to 20 percent for those individuals earning more than $400,000, but it could have gone up to 39.6 percent had we gone over the fiscal cliff.) Personal dividend income increased 4.5 percent in November and a whopping 34.3 percent in December. There has also been evidence of bonuses being pushed into December, as well, even though BEA does not keep track of that.

Manufacturing wages and salaries rose from $751.4 billion in November to $756.2 billion in December. On average, manufacturing wages and salaries have continued to rise, up 7.2 percent over the past year. This is a reflection of the increased production in the sector overall. In contrast, wage and salary disbursements in all private sectors rose 4.4 percent over the past year.

While income was increasing significantly in December on end-of-year moves, personal consumption was growing more slowly, up 0.2 percent. The largest spending gains were in durable goods, up 1.0 percent (and extending the 2.7 percent increase of November). Based on the GDP data released yesterday, we know that much of this increase was in the motor vehicle sector. Nondurable spending declined 0.2 percent. For the year, though, personal spending numbers have been decent, up 3.6 percent, helping to boost demand for manufactured goods.

With income increasing substantially outstripping spending growth, the savings rate jumped from 4.1 percent in November to 6.5 percent in December. It had been as low as 3.3 percent in September. The savings rate is now at its highest point since May 2009; although, I would expect for it to settle back to reality in January once these one-time-only wage increases are no longer part of the picture.

Chad Moutray is the chief economist, National Association of Manufacturers.

Personal income rose 0.6 percent in November, its fastest pace since February, according to the Bureau of Economic Analysis. Wages had declined in October, with slowdowns from Hurricane Sandy putting a dent in that month’s earnings data. Wages were higher in November, including those from manufacturers. Manufacturing wages and salaries rose from $746.4 billion in October to $750.0 billion in November. This puts manufacturing earnings just below what they were in July ($753.9 billion), its recent peak.

At the same time, personal spending recovered from lower levels in October. Consumer spending rose 0.4 percent. This was good news for durable goods manufacturers, which accounted for the bulk of the increase with purchases of these items up 2.7 percent for the month. Nondurable goods spending was down 1.0 percent, however, declining for the second month in a row.

Lower energy costs are providing a boost to Americans pocketbooks. Energy goods cost 4.4 percent less in November than in October. The implied price index from this data was unchanged at the core level, which excluded food and energy prices.

With income outstripping spending growth, the savings rate rose from 3.4 percent to 3.6 percent. The longer-term trend has been for the savings rate to move lower, as it was 4.1 percent in June and as high as high as 5.5 percent as recently as January 2011.

These data reflect improvements in personal income and consumer spending from a weakened October, when Hurricane Sandy weighed heavily on the data. That rebound is a good sign that income and spending have returned to moderate growth. Personal income has risen 4.1 percent year-over-year, with spending up 3.5 percent over the same time period.

Chad Moutray is chief economist, National Association of Manufacturers.

After stalling for two months, Americans increased their spending in July, according to the latest data from the Bureau of Economic Analysis. This is good news for manufacturers, with higher durable and nondurable goods consumption, up 0.8 percent and 0.6 percent. The durable goods picture has been positive for two consecutive months; whereas, the increase in nondurables reversed a similar decline from June.

Meanwhile, personal income rose 0.3 percent in July, the same growth rate as noted in May and June.  Personal income was up 3.6 percent year-over-year, edging slightly higher than last month. Wage and salaries disbursements for workers at manufacturing firms increased from $728.3 billion in June to $731.9 billion in July. It was $702.5 billion in December, suggesting an increase of $25.8 (or 3.7 percent) in the past seven months.

With spending slightly outpacing income, the savings rate fell from 4.3 percent to 4.2 percent. Overall, the savings rate has generally risen since November, when it stood at 3.2 percent. This contrasts with 2011, which had a downward trend in the savings rate. This indicates that consumers are paying down, or not taking on as much, debt.

Inflationary pressures continue to ease, with prices unchanged in July. The personal consumption expenditure deflator was up 1.3 percent in July over the same time last year. This represents a significant deceleration from the 2.4 percent growth rate observed just six months ago.

The lack of appreciable inflation – particularly at rates below the Fed’s stated target of 2 percent or less – allows policymakers to focus on expansionary measures, should they choose to do so. This may or may not include another round of quantitative easing, with the Fed already pursuing policies that have pushed interest rates to “exceptionally low” levels for the foreseeable future.  

Chad Moutray is chief economist, National Association of Manufacturers.

The Bureau of Economic Analysis said that personal income and spending rose modestly in January, up 0.3 percent and 0.2 percent respectively. This is the second consecutive month of gains in personal income; however, real disposable income in January fell by 0.1 percent. Personal spending, which was flat in December, rose on higher goods purchases. The consumption of services was unchanged.

Durable goods purchases increased 0.9 percent, building on December’s 0.5 percent jump. Meanwhile, nondurable spending was up 0.4 percent, a reversal from the declines of November and December. Over the course of the past year, personal consumption has risen 3.8 percent. This is a slower rate than the 4.4 percent growth between January 2010 and January 2011, but still a positive trend.

Manufacturing sector wages increased by $7.9 billion for the month to $730.3 billion, its third consecutive month of gains. The savings rate is currently 4.6 percent, slightly lower than the 4.7 percent rate of December. (Note that some of the data, including the savings rate, were revised upward from previous reports due to the inclusion of additional information. The December savings rate, for instance, was originally reported to be 4.0 percent.)  

Overall inflation appears to be modest, with the personal consumption expenditures deflator up 0.2 percent for January. On an annual basis, this suggests consumer inflation of 2.4 percent, or 1.9 percent if food and energy costs are excluded. Prices were nondurable goods increased 4.5 percent year-over-year, reflecting some easing from past months. Whereas, durable goods were 0.4 percent lower than they were this time last year.

Chad Moutray is chief economist, National Association of Manufacturers.

The Bureau of Economic Analysis observed flat consumer spending in December 2011, with personal income up 0.5 percent. The unchanged consumption figures followed five consecutive months of growth, and when adjusted for inflation, real consumption declined by 0.1 percent.

Goods purchases in the month were negative, with spending on both durables and nondurables 0.4 percent lower. Consumers did, however, increase their purchases on services, which rose by 0.2 percent. Still, the longer-term trend for consumption has been positive, as it is up 3.9 percent since December 2010.

Real personal disposable income rose 0.3 percent for the month. The income growth was the fastest pace since February 2011. Manufacturing sector wages increased by $7.4 billion for the month to $707.7 billion, reversing the decline experienced in November.

With strong growth in income and no change in spending, the overall savings rate improved from 3.5 percent in November to 4.0 percent in December. It was 5.2 percent in December 2010, reflecting its general movement downward in the second half of 2011.

There appears to be little inflation in the personal consumption numbers. In fact, while prices rose 0.1 percent for all goods and services, they fell by 0.2 percent for both durable and nondurable goods. Prices have fallen for several months now for nondurables, and this is the third consecutive month of declines for durables.

This suggests a limited ability to pass on any of the higher raw material costs experienced at the producer price level. Year-over-year data, though, suggest greater pricing pass-through for nondurables, with prices up 4.8 percent since December 2010 on nondurable goods compared with a decline of 0.5 percent on durables. The overall inflation rate for all goods and services since last year is 2.4 percent.

Chad Moutray is chief economist, National Association of Manufacturers.

Americans experienced a 0.3 percent increase in personal income and a 0.2 percent gain in disposable income in May, according to numbers released this morning from the Bureau of Economic Analysis. Consumer spending, though, was virtually unchanged from April, suggesting that slow job growth and increased prices are having an impact despite the higher incomes.

Consumers purchased $17.5 billion fewer durable goods and $8.2 billion fewer nondurable goods in May, down 1.5 percent and 0.3 percent, respectively. Real consumer spending fell 0.1 percent, much as it did the previous month.

Manufacturing wages and salaries rose by $2.9 billion, or 0.4 percent, in May after being unchanged in April. This continues a longer trend of manufacturing compensation inching up, with year-to-date wages and salaries up 2.4 percent.

Prices for consumer items were up 0.2 percent in May, with the core inflation rate – which excludes food and energy – rising 0.3 percent. Consumer prices are 2.5 percent higher than in May 2010, and the year-over-year core inflation rate stands at 1.2 percent. Core inflation, while low, has steadily risen over the past few months. Energy costs fell in the month of May, reflecting lower recent gasoline prices, but food costs continued to rise.

The personal savings rate now stands at 5 percent, up slightly from April’s reading of 4.9 percent but below the 5.4 percent rate of December 2010.

Chad Moutray is chief economist, National Association of Manufacturers.