U.S. personal income remained unchanged in March, below the consensus forecast for a gain of 0.2%. After controlling for inflation and taxes, real personal disposable income edged down by 0.2%. Personal spending rose by 0.4% in nominal terms, also below the consensus forecast of 0.5%.
Revisions were positive though, with the February reading revised up to 0.2%. In real terms, spending rose by a slightly weaker 0.3%. The weaker than expected reading for March implies slightly less momentum heading into the second quarter.
The pullback in the savings rate shows that consumers are finally starting to dip into their recent income gains (related to lower gasoline prices) to help finance purchases. This trend should continue over the coming months, especially given the elevated level of consumer confidence. Moreover, continued gains in the labor market should soon start to manifest in higher wage gains - also helping to provide a lift to consumption.
TD Economics says - "We remain of the thought that much of the weakness in the first quarter was likely due to transitory factors (namely bad weather and West Coast port disruptions) and expect to see a meaningful bounce back in economic activity over the remainder of the year. Provided this materializes, the Fed is likely to begin raising rates in September of this year."
