Personal income for Americans rose by 0.1 percent in March, according to a new report from the U.S. Department of Commerce. That was worse than the 0.4 percent gain analysts expected but still the 38th increase in the past 39 months. Further, the seemingly weak headline print was largely due to a decline in interest income (falling rates) that masked the solid 0.4 percent increase in wages and salaries. That contributed to March’s 0.9 percent surge in personal consumption, the largest gain since August 2009 and additional evidence that December’s unusually weak consumer spending was likely just a temporary soft patch. The personal savings rate, though, fell by the most in six years to the lowest level since November, supporting our earlier suggestion that additional income growth will still be needed to sustain consumer spending.
Fortunately the labor market remains tight, which will keep upward pressure on wages going forward. The latest employment cost data from the U.S. Labor Department out this morning even showed that total compensation costs for civilian workers (wages, salaries, benefits, and employer-paid taxes) increased by 0.7 percent in the first quarter and 2.8 percent over the past year. It would not be surprising if businesses raised selling prices to try to offset higher employment costs, but so far there is little evidence that this is going on. In fact, the Federal Reserve’s preferred measure of household inflation rose by just 1.6 percent over the past twelve months, the slowest rate of annual growth recorded in over a year and well below the Fed’s 2 percent “target.” This will help officials justify a more “patient” approach to monetary policy in tomorrow’s big announcement from the Federal Open Market Committee (FOMC), although for the stock market a growing risk is that the Fed will have to tone down the dovish rhetoric given the recent signs of strength in the economy.
Sources: Econoday, Census Bureau, U.S. DoL, Bloomberg, Twitter, FRBSL
Post author: Charles Couch