Personal Incomes Flourished in January: February 24 – 28

The U.S. economy started 2020 with some positive numbers, but questions emerge about the potential impact coming from COVID-19. Here are the five things we learned from U.S. economic data released during the week ending February 28.

#1Personal income rose in January. The Bureau of Economic Analysis reports that nominal (not inflation-adjusted) personal income rose 0.6 percent during the month, its biggest jump in 11 months. Nominal disposable income also advanced 0.6 percent while inflation-adjusted “real” disposable income swelled 0.5 percent. The extra money in the wallet did not, however, translate to significantly increased spending—real personal consumption expenditures (PCE) grew 0.1 percent during the month (the nominal measure advanced 0.2 percent). While durable goods spending surged 0.6 percent and that on services moved forward 0.3 percent, expenditures on nondurables slowed 0.2 percent. The savings rate widened by 4/10ths of a percentage point to +7.9 percent.

#22019 ended with a moderately expanding economy. The Bureau of Economic Analysis’ second estimate of Q4 2019 Gross Domestic Product (GDP) growth matched that of its first estimate with a seasonally adjusted annualized rate (SAAR) of +2.1 percent. This followed a matching +2.1 percent gain during Q3 and a 2.0 percent advance in Q2. The revision reflected a higher than previously believed level of private inventory investment counterbalanced by a smaller estimate of nonresidential fixed investment. Making positive contributions to Q4 growth were (in descending order) imports, personal consumption, government expenditures, and exports. Dragging down economic activity were private inventory investment and nonresidential fixed investment. The BEA will once again update its Q4 GDP estimate on March 26.

#3Signs suggest economic conditions solidified in January. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators, improved by 26-basis points to -0.25. The three-month moving average gained by 14-basis points to a reading of -0.09, its best mark since last August. (A CFNAI reading of 0.00 is indicative of the U.S. economy growing at its historical average. A reading of -0.70 suggests an economic contraction.) Thirty-six of the 85 indicators made a positive contribution to the CFNAI, while the other 49 had a negative impact. All four major categories of indicators showed improved from their December readings, although three of them had overall a negative effect on the headline index: production (-0.23), employment (-0.03) sales/orders/inventories (-0.02), and personal consumption/housing (+0.03). 

#4Consumer Sentiment held firm for now. The Conference Board’s Consumer Confidence Index inched up by 3/10ths of a point in February to a seasonally adjusted 130.7 (1985=100). The present conditions index shed 8.8 points to a reading of 165.1 while the expectations index added 6.4 points to 107.8. 38.6 percent of survey respondents viewed current economic conditions as “good” (versus 40.0 percent in the January survey), while 44.6 percent described jobs as being “plentiful” (versus 47.2 percent in the January survey). In noting the consumers view current economic conditions “quite favorably,” the press release said the results “support spending and economic growth in the near term.”

The University of Michigan’s Index of Consumer Sentiment added 1.2 points in February to a seasonally adjusted 101.0 (1966Q1=100), leaving the measure up 7.2 points from a year earlier. The current conditions index edged up by 4/10ths of a point to 114.8 (February 2019: 108.5) while the expected conditions index added 1.6 points to 92.1 (February 2019). Most notable in the press release was the observation about the impact on sentiment from the news surrounding the coronavirus—while only eight percent of survey respondents noted that COVID-19 was affecting their economic expectations, 20 percent of those who completed the survey early last week (after the release of the CDC warnings and freefall in the stock market) said the news was affecting their outlook. (The press release noted that this difference was not statistically significant.)

#5New home sales surged in January. The Census Bureau reports that new home sales rose 7.9 percent to a seasonally adjusted annualized rate of 764,000 units. This was the highest level of new home sales since June 2007 and represented an 18.6 percent gain from a year earlier. Sales grew during the month in three of four Census regions: Midwest (+30.3 percent), West (+23.5 percent), and Northeast (+4.8 percent). The Midwest suffered a 4.4 percent drop in new home sales. There were 324,000 unsold new homes on the market at the end of January (+0.3 percent versus December 2019 and -4.6 percent versus January 2019), the equivalent to a 5.1 month supply. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 22, 2020, First-Time Claims, seasonally adjusted): 219,000 (+8,000 vs. previous week; -5,000 vs. the same week a year earlier). 4-week moving average: 209,750, -6.6% vs. the same week a year earlier).
Pending Home Sales (January 2020, Index (2001=100), seasonally adjusted): 108.8 (vs. December 2019: 103.4; January 2019: 102.9).
FHFA House Price Index (December 2019, Purchase-Only Index, seasonally adjusted): +0.6% vs. November 2019, +5.2% vs. December 2018.
Agricultural Prices (January 2020, Prices Received by Farmers): -2.2% vs. December 2019, +2.5% vs. January 2019.

The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.

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