March 2018 Incomes and Outlays

Americans made more and spent more money in March 2018 according to the Bureau of Economic Analysis’ report on Incomes and Outlays.  However, in typical American style, consumers spent faster than their incomes grew, so the savings rate suffered.  Finally, inflation’s trend seems to be nearing the Federal Reserve’s explicit target.

All four major sources of personal income improved.  The wages and salaries category moved up the slowest of the bunch.  Personal income receipts on assets (think interest payments and dividends) increased 0.3 percent.  Proprietor’s income rose 0.4 percent.  Rising the fastest, rental income jumped 0.5 percent in March.  In aggregate, Americans took home an additional 0.3 percent after taxes as the first quarter ended.

Outlays rose 0.4 percent as spending on both goods and services increased.  Americans spent 1.1 percent more on durable goods, halting a two-month slide.  Purchases of nondurable goods were positive for the first time in three months, rising 0.3 percent.  Finally, outlays on services rose 0.3 percent after declining marginally in February.  Since the uptick in spending outpaced income growth, our nation’s savings rate declined 0.2 percentage points to 3.1 percent.

Inflation could be gaining firmer footing in the economy.  The personal consumption expenditures (PCE) price index rose 2.0 percent versus a year ago.  Similarly, the core-PCE price index increased 1.9 percent in the past twelve months.  Core-PCE is the Federal Reserve’s preferred measure of inflation, and it is nearing the central bank’s explicit target of 2.0 percent, helping justify their plans for relatively tighter monetary policy. 

America’s economy is moving ahead.  Consumers are finding work and spending their incomes.  Atlas worries about the savings rate in the long-run but must admit that the dearth of savings helps in the short-run.  Inflation is near the Federal Reserve’s target, but as the price proxy reaches their mark, it does not mean the bankers will immediately turn to more hawkish policies and attempt to cool things off; instead, they have expressed a desire to systematically raise rates as conditions improve, preparing themselves for the next inevitable downturn.  But we’re not there yet.  In the meantime, let’s enjoy an economy which continues growing.