The Bureau of Economic Analysis said that personal spending remained flat in March, slowing from more-robust purchasing at the end of 2016. Personal consumption expenditures were unchanged in both February and March, down from gains of 0.6 percent and 0.2 percent in December and January, respectively. These data suggest that Americans have once again become more cautious in their spending. To illustrate this point, personal spending grew 0.9 percent at the annual rate in the first quarter, decelerating sharply from the 5.6 percent annual pace seen in the fourth quarter. More than anything, that helps to explain the soft real GDP numbers for the first quarter of 2017, up just 0.7 percent. In addition, the savings rate has moved higher with weaker spending activity, up from 5.2 percent in December to 5.9 percent in March.
To be fair, we have seen improvements in personal spending over the longer term. For instance, personal consumption expenditures have risen 4.7 percent since March 2016. Moreover, the savings rate was also slightly higher one year ago at 6.2 percent.
Meanwhile, personal income increased 0.2 percent in March, easing from 0.3 percent in February and rising at its slowest rate since November. On a year-over-year basis, personal incomes have continued to increase at a decent clip, up 4.5 percent since March 2016. This was unchanged from the prior report and was nearly a two-year high. Despite the higher data overall, manufacturing wages and salaries edged down from $859.2 billion in February to $852.7 billion in March. Nonetheless, there has been a steady upward trend in manufacturing compensation in general, with wages and salaries in the sector averaging $806.7 billion and $829.4 billion in 2015 and 2016, respectively.
In other news, the personal consumption expenditure (PCE) deflator decreased by 0.2 percent in March, the first decline in one year. The reduced figure in this report came mostly from reduced energy costs, down 3.4 percent. Excluding food and energy, core inflation was also weaker, down 0.1 percent. The PC deflator has risen 1.8 percent since March 2016, down from 2.1 percent in the prior release but up from 0.8 percent one year ago. Even with accelerated pressures in recent months, core price growth remains mostly under control for now, with core inflation up 1.6 percent over the past 12 months.