Personal income, spending, and savings data portend an encouraging future. Here are the five things we learned from U.S. economic data released during the week ending February 26.
Personal income and spending surged in January. The Bureau of Economic Activity reports that nominal personal income jumped a seasonally adjusted 10.0 percent during the month, following a 0.6 percent rise in December. Nominal disposable income rose 11.4 percent while “real” disposable income (adjusted for inflation) swelled 11.0 percent. Each of these gains reflected the economic stimulus checks received by most U.S. households along with the resumption of expanded pandemic-related unemployment insurance benefits. Nominal Personal Consumption Expenditures (PCE) grew for the first time in three months with a 2.4 percent increase. Real personal spending gained 2.0 percent. Spending on goods rose 5.1 percent—split between durable and nondurable goods by +8.3 percent and +3.3 percent, respectively. Services expenditures grew 0.5 percent. Notable is the saving rate, which skyrocketed to +20.5 percent in January. The savings rate has been exceptionally high—i.e., double-digit percentages—for much of the pandemic.
The U.S. economy grew slightly faster than previously believed as 2020 wrapped up. The second estimate of Gross Domestic Product (GDP) puts economic growth at a seasonally adjusted annualized rate of +4.1 percent. This was up 1/10th of a percentage point from the Bureau of Economic Analysis’ prior estimate published a month earlier and left the U.S. economy contracting 3.5 percent for all of 2020. The revision reflected higher than previously believed levels of business investment, private inventory accumulation, and state/local government expenditures (along with a lower level of personal spending). The same report shows that inflation was well in check, staying below the Federal Reserve’s two-percent target. The personal consumption expenditure (PCE) deflator grew by an annualized 1.2 percent during Q4 while the core PCE deflator (net of energy and food) increased 1.4 percent.
Economic activity accelerated in January. The Chicago Fed National Activity Index (CFNAI) grew by 25-basis points to a reading of +0.66. The weighted measure of 85 economic indicators has been above zero—suggestive of a U.S. economy growing faster than its historical average—since May. Fifty-three of the 85 indicators positively contributed to the CFNAI, with three of four major categories (production, sales/order/inventories, and employment) each making smaller contributions. Personal consumption/housing indicators made a positive contribution in January after doing the opposite during the prior month. The CFNAI’s three-month moving average narrowed by 13-basis points to a still expansionary reading of +0.47.
Forward-looking measures suggest a brighter 2021. The Conference Board’s Leading Economic Index (LEI) expanded by a half-point in January to a reading of 110.3 (2016=100). Despite rising since the late spring, the measure remained 1.5 percent behind year-ago levels. Seven of 10 LEI components made positive contributions, led by building permits and average manufacturing hours worked. The coincident index added 2/10ths of a point to a reading of 103.3 (-3.5 percent versus January 2020), with all four index components making positive contributions. The lagging index shed 6/10ths of a point to 106.2 (-2.2 percent versus January 2020). The organization anticipates the U.S. economy will expand 4.4 percent this year.
Two surveys provide mixed signals on consumer sentiment. The Conference Board’s Consumer Confidence Index added 2.4 points during February to a seasonally adjusted reading of 91.3 (1986=100). While rising for two consecutive months, the measure remained well below its year-ago reading of 130.4. The present conditions index jumped by 6.5 points to 92.0, while the expectations index slipped by 4/10ths of a point to 90.8. 16.5 percent of survey respondents viewed current business conditions as “good” while 39.9 percent saw them as “bad.” 31.0 percent of consumers anticipate conditions will improve over the next six months, while 17.7 percent expect a further deterioration. The press release noted that consumers “remain cautiously optimistic” about near-term expectations.
The Index of Consumer Sentiment from the University of Michigan lost 2.2 points in February to a seasonally adjusted 76.8 (1966Q1=100). One year earlier (weeks before the start of the pandemic-triggered shutdown), the same measure was at 101.0. The current conditions index shed a half-point to 86.2 (February 2020: 114.8), while the expectations index slumped by 3.3 points to 70.7 (February 2020: 92.1). The press release warns, “few consumers anticipate the type of persistent and robust economic growth that restores employment conditions to the very positive pre-pandemic levels.”
Other U.S. economic data released over the past week:
- Jobless Claims (Week ending February 20, First-Time Claims, seasonally adjusted): 730,000, -111,000 vs. the previous week, +510,000 vs. the same week a year earlier). 4-week moving average: 807,750 (+284.6% vs. the same week a year earlier).
- New Home Sales (January 2021, New Home Sold, seasonally adjusted annualized rate): 923,000 (+4.3% vs. December 2020, +19.3% vs. January 2020).
- Pending Home Sales (January 2021, Index (2001=100), seasonally adjusted): 122.8 (-2.8% vs. December 2020, +13.0% vs. January 2020).
- FHFA House Pricing Index (December 2020, Purchase-Only Index, seasonally adjusted): +1.1% vs. November 2020, +11.4% vs. December 2019.
- Case-Shiller Home Price Index (December 2020, 20-City Index, seasonally adjusted): +1.3% vs. November 2020, +10.1% vs. December 2019.
- Agricultural Prices (January 2021, Prices Received by Farmers): -1.4% vs December 2020, +1.2% vs. January 2020.
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