By: Jade R. Gardener
The release of the most recent economic data presents a favorable outlook for the United States economy. After a favorable rise in both December and November the most recent personal income data signifies a strengthening in the United States economy. The modest rise in personal income from is an encouraging sign for growth in the American economy.
Many in the financial sector believe that these numbers are a great sign but are due to a number of factors.
“Income is growing faster, largely from wages, and people are finally getting confident enough to spend what they make. Not only are these good numbers by themselves, they also serve as evidence that a recession is not likely anytime soon”, said Brad McMillian, Senior Vice President and Chief Investment Officer at Commonwealth Financial Network.
The steady growth of consumer confidence was reflected in the growth in the goods and services consumed by individuals, known as Personal Consumption Expenditures, was also bolstered by an identical rise in the .5% growth in the Disposable Personal Income or the amount Americans as a whole have left over as extra to spend or save.
“We’re likely seeing core inflation measures and consumer spending drift higher, particularly as wage growth continues in a tight labor market, said Gregory McBride, Chief Financial Analyst at Bankrate.com.
For the average consumer, it is not just enough to make and spend more, there is the need to save more following the recent recession. Although Personal Consumption Expenditures has increased the percentage of Disposable Personal Income being saved is stagnant at 5.2%. There appears to be an inability for consumers to actually save. The inquiry is why can people not save although signs appear that the recession is behind us. “This belief might be true for some households, but for many others, it is only when they see sustained growth in their household income that they finally feel as if the economic recovery has landed at their doorstep”, McBride said.
The solution here according to McBride is an increase in household income.
“Most households aren’t saving, and in large part because incomes haven’t grown appreciably and budgets are tight. Growth in household income will put some ‘oomph’ in households’ savings effort,” said McBride.
Savings rates although increasing is actually a return to the 5% to 6% range that was rather common before the decade of the 2000s, so the 5.2% savings rate reveal saving getting back to normal. In the coming months, McMillan predicts that there, is limited pressure on the economy to encourage higher saving rate and that this months stability is a result of slow attempt at savings stability playing out.
For many the increase in the PCE, DPI and steady growth in savings are a sure sign that the Federal Reserve will be ready to act in March. Most experts, such as McBride and Millan Mulraine however, believe the Fed is being wary. “The Fed wants to see that economic growth is continuing and that the uptick in core inflation can persist despite market volatility,” McBride said. “Even then, the Fed likely wants to see calmer financial markets before rocking the boat with another rate increase.”
Millan Mulraine, Deputy Chief US Macro Strategist at TD Securities USA, also infers that the Fed is not that impressed by the growth just yet. He predicts that the Fed will want to remain on the sidelines at the March, May, and April meetings awaiting further confirmation that the upswing in growth and inflation momentum is being sustained with rates finally increasing by June.