Today's Breakfast with Dave has an updated perspective on the contraction of the US consumer, after yesterday's income and spending update. And good news for Amazon: Americans are finally rememberizing how to read good.
From Gluskin Sheff's David Rosenberg:
U.S. personal income came in below expected, coming in at +0.1% MoM in January versus expectations of a 0.4% increase. This was the weakest increase in six months but the gain was held back by declines in interest, dividend and farm incomes — the key was that wages and salaries rose 0.35%, to the second decimal place, the strongest in nine months. Transfers from the government have become a mainstay, rising 0.7% MoM in January and 12% on a year-over-year basis. Just to make matters more confusing, ‘real personal income excluding government transfers’ fell 0.2% MoM and this is the measure the NBER uses to determine if the economy is in recession or expansion.
What about the spending side? Well, in nominal dollars, consumer outlays rose to what appears to be a healthy 0.5% MoM pace, and +0.3% in real terms. In fact, we have the consumer now having a +2% “build in” so far for Q1. But 60% of that headline consumer spending print came from food and energy — everything else rose a tepid 0.2%. In fact, spending on durables or ‘big ticket’ items rose by less than 0.1% in its weakest showing in four months. Almost all the growth was in non-durables, which surged 1.8% and most of that were groceries and gasoline — the two ‘G’s. Services eked an advance of less than 0.2%, held back by housing/utilities.
All in, the gap between income and spending growth last month pulled the savings rate down to 3.3% in January from 4.2% in December, the lowest it has been since October 2008. This is indeed a surprising result, but then again, the government has been doing everything it can to promote consumption over the course of the past year.
While spending of all kinds still shows up in the GDP data whether it be on speedboats or ice cream, we think it is important to do a proper accounting of what the drivers are in any given month, quarter or year. It is tough for us to come to the conclusion that the consumer is feeling too good about the future when spending on items that requires a high degree of confidence over the economic outlook tapers off as was the case in January. Auto spending was cut by 1.2%, the first decline since last September. Furniture spending fell 0.5%. Home improvement outlays dropped 2.1%. Just a few examples about how the household sector still refuses to make a long-term commitment to the economy.
But spending on feel-good pleasure stuff certainly did improve.
- Personal care products jumped 2.9% (more cosmetics).
- Clothing rose 0.6% (women’s +1.0%; men’s +0.4% — surprised?).
- Health services were up 2.9%.
- Magazines/newspapers rose 1.1% and books by 2.1%.
- Spending on cable picked up 0.9%.
- Jewellry rose 1.7%.
- Video/audio equipment spending increased 1.1%.
- Spending at restaurants rose 0.7%
While people did spend more on luxury items and things to help them improve their mood during these tumultuous times, there was still very much a frugal ‘stay at home’ cocooning theme in the spending report. For example, there was less spending activity on sports events (-0.7%), amusement parks (-0.3%) and movie theaters (-4.2%). Instead, people spent more money on books (+2.1%), cable (+0.9%) and television sets (+0.7%). Games and toys were up 1.4% — family fun for everyone! While there was more money for fast food outlets, grocery spending was more robust during the month (+1%). People cut back on their travel, that is for sure too — rails down 1.5% and airline spending was flat. Hotels were cut back by 4.4%.
There was also a bit of a ‘do it yourself’ theme in the data too — sewing items up 1.6%, clothing materials also up 1.6%, auto parts rose 0.7% and furniture repairs were cut back by 0.2% while laundry services stagnated. Accounting and business services spending was sliced 0.7%. Interestingly enough, we can still see a relatively high level of insecurity in the data. How else to explain that gambling rose 0.6% in January and within that even more spending on lotteries, which has risen in each and every month since January 2009?
Full Rosenberg note here.