Consumer Spending Bounces Back: February 21 – 25

Inflation remained a challenge in January. Here are the five things we learned from U.S. economic data released during the week ending February 25. 

Personal spending jumped in January, but so did prices. Real Personal Consumption Expenditures (PCE) rose a seasonally adjusted 1.5 percent during the month, following a 1.3 percent drop in December. The Bureau of Economic Analysis data show increased spending on durable goods (8.5 percent), nondurables (+1.9 percent), and services (+0.1 percent). Without adjustments for inflation (more on that below), nominal PCE surged 2.1 percent. The rise in spending occurred even though nominal personal income held steady and nominal disposable income eked out a 0.1 percent gain. With inflation adjustments, real disposable income dropped 0.5 percent in January. As a result, the savings rate fell to a pandemic low of +6.4 percent. Real consumer spending was 5.4 percent ahead of its year-ago pace, even though real disposable income was 9.9 percent below its January 2021 pace. This report also features the Federal Reserve preferred price measure, the PCE price index. That measure jumped 0.6 percent in January and has risen 6.1 percent over the past year, a 40-year high. Netting out both energy and food has the core PCE price index up 0.5 percent in January and 5.2 from a year earlier, a 39-year high. 

It appears economic activity regained some momentum in January. The Chicago Fed National Activity Index (CFNAI) surged by 62-basis points to a reading of +0.69. A reading above 0.00 signals that the U.S. economy expanded faster than its historical average. Fifty-seven of the CFNAI’s 85 components made positive contributions to the index, with the remaining 28 doing the opposite. All four major categories of indicators made positive contributions in January: production (+0.29), personal consumption/housing (+0.23), employment (+0.14), and sales/orders/inventories (+0.03). The CFNAI’s three-month moving average was +0.42 (down four-basis points from December), indicative of an above-average expanding U.S. economy. 

There was a slight upward revision to the estimate of Q4 economic growth. The Bureau of Economic Analysis now estimates U.S. Gross Domestic Product (GDP) expanded at a seasonally adjusted annualized rate (SAAR) of 7.0 percent during the final three months of 2021. This represented a 1/10^th of a percentage point improvement from the BEA’s previously reported estimate. Making positive contributions to Q4 GDP growth were (in descending order) the change in private inventories, exports, personal consumption, and nonresidential and residential fixed investment. Drags on the economy were (in descending order) imports, and federal and state/local government spending. The BEA will update its Q4 GDP estimate (and include data on corporate profits) later in March.  

Consumer sentiment deteriorated further in February. The Conference Board’s Consumer Confidence Index shed 6/10^ths of a point to a seasonally adjusted 111.1 (1985=100), its lowest point since last September. The current conditions index improved by 6/10^ths of a point to 145.1, while the expectations index shed 1.3 points to 87.5. The press release noted that inflation concerns increased” but also that “consumers remain relatively confident about short-term prospects.” 

Meanwhile, the University of Michigan’s Index of Consumer Sentiment lost 4.4 points to a pandemic-low 62.8 (seasonally adjusted, 1966Q1=100). The current (down 3.8 points to 68.2) and expected conditions (down 4.7 points to 59.4) lost ground in February. The press release noted all of the index’s decline came from higher-income households and were the product of “inflationary declines in personal finances, a near universal awareness of rising interest rates, falling confidence in the government’s economic policies, and the most negative long term prospects for the economy in the past decade.”

Durable goods orders rose in January. The Census Bureau reports that new orders for manufactured durable goods jumped 1.6 percent during the month to a seasonally adjusted $277.5 billion. Transportation orders swelled 3.4 percent, primarily due to a 15.6 percent increase for civilian aircraft. Net of transportation goods, core durable goods orders advanced 0.7 percent. Durable goods shipments gained 1.2 percent in January to $270.4 billion—with non-transportation goods orders up 1.5 percent. Also rising during the month were unfilled orders (+0.9 percent to $1.283 trillion) and inventories (+0.4 percent to $476.0 billion). 

Other U.S. economic data released over the past week:

• Jobless Claims (Week ending February 19, 2022, First-Time Claims, seasonally adjusted): 232,000, -17,000 vs. the previous week, -545,000 vs. the same week a year earlier). 4-week moving average: 236,250 (-71.3% vs. the same week a year earlier). 
• New Home Sales (January 2022, New Single-Family Home Sales, seasonally adjusted annualized rate): 801,000 (-4.5% vs. December 2021; -19.3% vs. January 2021). 
• Pending Home Sales (January 2022, Pending Home Sales Index (2001=100), seasonally adjusted): 109.5 (-5.7% vs. December 2021; -9.5% vs. January 2021). 
• FHFA House Price Index (December 2020, Purchase-Only Index, seasonally adjusted): +1.2% vs. November 2021; +17.6% vs. December 2020.
• S&P Case-Shiller Home Price Index (December 2020, National Index, seasonally adjusted): +1.3% vs. November 2021; +18.8% vs. December 2020. 

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