After a depressing start to the new year, income numbers showed a slight increase, but failed to reach economists predictions. The numbers are consistent in showing that the economy slowed last year, and slowed further at the beginning of this year. The economy has now had three consecutive quarters of slowing of GDP growth.
Personal income saw a small uptick of 0.2 percent following decrease of -0.1 percent in January. We see the same figure for disposable personal income which increased 0.2 percent, up from -0.2 percent in January.
Robert Brusca, chief economist at Fact and Opinion said, “This is a depressing number.” This month’s report shows continued weakness in spending and the core inflation rate slipped to 1.8% year over year, again falling short of the Fed’s goal of 2%.
“Numbers around the world show a trend downward,” said Brusca.
This trend of undershooting inflation is mirrored across global economies, and economists agree that the Fed no longer needs to raise interest rates.
We’re still dealing with a course correction from December where one time dividend spending inflated the numbers. Although economists predicted a modest growth of 0.3 percent in personal income, the outcome was slightly lower than expected.
The government shutdown is also still having a spillover effect on the numbers coming out for February, and we should see that trend continue when we get the remainder of the outlays report at the end of April.
The shutdown was cause for a decline in consumer confidence. During that period 800,000 government workers went without paychecks causing a clear reduction in spending. Individuals not directly affected by shutdown cooled their spending as well, due to economic uncertainty.
During this period Charles Kress, a paralegal at Weitz & Luxenburg, began working overtime to earn extra income. “I was working longer hours than I otherwise wanted to, to make more money in order to make ends meet,” said Kress.
As the economic growth declined at the end of the year, Kress began looking for another job that would boost his salary. He was able to secure a job as senior legal staff associate for the Department of Consumer Affairs, and was officially hired at the end of February.
“I was really lucky, right after I got hired the department enacted a hiring freeze,” said Kress.
The personal savings rate remained strong in January even though it showed a small decline. For January the personal savings rate was 7.5 percent, down from 7.7 percent the month prior.
It’s healthy sign that the savings rate has remained so high in recent months. “Consumers and households are more resilient and have more padding around them than they did around 2005 and 2006,” said Robert Dye, senior VP and chief economist at Comerica Bank.
The increase in savings is consistent with the decrease in spending on durable goods, things like cars and dishwashers, although spending on services remained strong. “People had enough income and they chose not to spend it,” said Brusca.
But economists don’t see this weakening as real cause for alarm. Good news came out of the service sector, the sector largest of the economy, were productivity is generally low, but spending continued to cruise along, although the growth rate was a little weaker.
Brusca said the increase in service spending translates to job growth, “people are going to be more active, it will require more people working.”
Wage growth has maintained a strong level which is good for overall payrolls, but February saw a decline in work week hours, so those numbers may have offset each other. Wage growth is positive, but if work hours continue to decline, those gains wages won’t be felt in people’s pocket books.
Apart from the dismal growth numbers for jobs in the month of February, wages increased, but the work week hours fell slightly. This could be another effect of the shutdown, as many government workers tried to supplement their earnings by taking on part time jobs. Economists expect next month’s jobs report to be a lot stronger, and consistent with the longer term trend of steady growth.
Dye said, “We’ll see more jobs and higher wages in March.”