perspective on the economy.
March 1, 2011
Data Release: Tax Cuts Boost Personal Income in January, But Spending
* Personal income bettered market expectations in January jumping 1.0%,
driven largely by payroll tax cuts.
Personal disposable income (PDI) was up 0.7% on the month; however, were it
not for the impact of the tax
changes PDI growth would have been up only a scant 0.1%, after a 0.4% gain
* Personal consumption expenditures disappointed markets, posting only a
0.2% increase in January. That muted
spending growth pushed the savings rate up a few ticks to 5.8%. The savings
rate had averaged 5.4% in the fourth
quarter of last year.
* Spending was even softer in real terms, down 0.1% on the month - the first
contraction since last April. That
reflected real declines in nondurables (-0.2%) and services (-0.1%), with
spending on durables managing to
register a 0.3% gain.
* Inflation as measured by the personal consumption deflator rose to 1.2%
unchanged from December, while core
PCE inflation (ex food & energy) is running at a 0.8% pace year-on-year, the
same reading for four months now.
* Today's disappointing showing for real consumer spending means that we
will likely have to revise down our target
for first quarter consumer spending. We see consumer spending posting a
closer to 2.5% pace in Q1, down from
our previous expectations of 2.9%. And in turn will likely result in
slightly lower real GDP growth than we had been
expecting for Q1.
* That said, the US saw some pretty significant storms in January, and we
could see a comeback in the months
ahead, particularly given the healthy headline income gain, although not
soon enough to save real spending in Q1.
* January's poor spending performance also stands in stark contrast to the
more positive mood consumers have
been reporting in recent confidence surveys, suggesting that the healthy
income gains should lead to decent
consumer spending growth in 2011. Friday's payrolls reading for February
will be eagerly awaited to see if jobs
growth will pick up to further underpin sustained spending growth ahead.
I hope this finds you Happy and Healthy!
All the Best!
A. Mark Argentino
P. Eng. Broker
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc.
Providing Full-Time Professional Real Estate Services since 1987
FAX 905-828-2829 CELL 416-520-1577
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