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Though US Consumer Spending is up, it’s Not Going to Clothing and Footwear

Consumers may be spending more, but they’re focused on things beyond what they wear.

U.S. personal income increased 0.4%, or $47.8 billion, in March, primarily driven by gains in wages and salaries, social security benefits and dividend income, according to estimates released Monday by the Bureau of Economic Analysis (BEA).

Disposable personal income (DPI) also rose 0.3%, or $39.8 billion, and personal consumption expenditures (PCE) were up 0.4% or $61.7 billion. While personal income includes overall income received through wages, home or business ownership and financial assets, DPI is the income available for spending or saving, and it’s considered a key barometer of potential consumer spending.

“Today’s report is in line with expectations that real PCE would rebound in March following a slow start to the year, though the rebound was slightly less than we anticipated and is based on a level that was revised lower in February,” Kathleen Navin, director of Macroeconomic Advisers by IHS Markit, said. “As a result, we trimmed three-tenths from our forecast of Q2 PCE growth, which now stands at 2.7%, still up substantially from growth of just 1.1% in Q1.”

Real DPI, adjusted for inflation, increased 0.2% in March. The PCE price index rose less than 0.1%, while the core PCE Index, excluding food and energy, increased 0.2%.

The $50 billion gain in real PCE in March reflected an increase of $24.2 billion in spending for goods and a $26.8 billion increase in spending for services, according to BEA data. Within goods, purchases of recreational goods and vehicles was the leading contributor to the increase.

Real PCE for clothing and footwear fell 2.3% to $387.34 billion in the first quarter of 2018 compared to the fourth quarter of 2017, BEA data showed. Within services, the largest contributor to the increase was spending for household electricity and gas.

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Personal outlays increased $62.3 billion in March, while personal saving was $460.6 billion in the month compared to $483.1 billion in February. The personal saving rate–personal savings as a percentage of disposable personal income–was 3.1% compared to 3.3% in February.

“The bounce-back in real PCE in March implies more momentum heading into Q2, setting the stage for a healthy pick-up in GDP growth, albeit somewhat less than we previously forecast. We now look for Q2 GDP growth of 3.0%, down two-tenths from our previous forecast,” Navin said.

Real gross domestic product (GDP) increased at an annual rate of 2.3% in the first quarter of 2018, BEA reported last week.

Navin noted that income gains were moderate in March and were the weakest since August due to softness in wages and salaries, though personal dividends showed signs of strength, ticking up 0.9% in March on top of a 1 percent increase in February.

Personal interest income has been falling since the beginning of year, Navin said, and disposable income gains lagged behind spending gains in March, pushing the savings rate down to 3.1%, which was still up from the 2.4% reading in December.