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After beginning this year hot, the economy began to slow in February, with U.S. consumers spending less and inflation easing. On Friday, The Bureau of Economic Analysis will release its Personal Income and Outlays report, showing if the trend continues. Here’s five things to keep in mind as the report comes out tomorrow.

More modest consumer spending

Consumer spending is expected to still stay resilient but weaker than in the beginning of 2023.The quarterly GDP report saw PCE grow at a 3.7% annualized pace, so that still does suggest some slow down in spending for March but tomorrow’s report will give more updated monthly figures. “That’s going to give us not only the information about where the momentum for the first quarter came from, but also how much momentum we have as we go into the second quarter,” said Marc Giannoni, chief US economist at Barclays Capital Inc. 

Personal Income moderately rising

The economy is expected to still keep generating income. We still have a relatively tight labor market, with employers still hiring over 200,000 workers in February, which has slowed since the strikingly high numbers in January but is still relatively robust. For now, the increased wages from these jobs are driving the fueling consumers’ spending, putting upward pressure on prices and inflation, which the Fed has been trying to moderate with high interest rates. “Last year we had a story where inflation was outpacing wages. That’s not really the case as much anymore. As inflation slows, I think it really is translating into some real income gains,” said Shannon Seery, vice president and economist for Wells Fargo’s Corporate and Investment Bank.

People are saving less than before pandemic

Consumers, whose consumption in the past year has been driven by amassed pandemic savings, are saving less than they did on average before 2023. In February, the personal savings rate fell to 4.6, a substantial decline from the historical average of 8 percent in the last six decades, but as people’s debts increase, wage growth slows and with still high inflation, the consumers’ resilience becomes more uncertain.

Inflation slowly decelerating

Personal Consumption Expenditures Price Index, Fed’s preferred gauge for inflation is expected to continue growing at around the same rate of 0.3% as the previous month, indicating a gradual slowdown. The consumer-price index, a wider inflation measure that measures the price consumers pay for goods and services, also showed a slowdown, meaning the Fed’s strategy to make borrowing more expensive has been working, discouraging people from spending and slowing price increase.

The Fed is trying to cool off the economy, has it been working?

The economists say, it’s taking time but it has been working. With hiking interest rates, we’ve seen reducing demand for interest rate-sensitive products, such as real estate. As mortgage rates increased, the housing market slowed and investment in infrastructure and equipment declined.