In his latest Breakfast with Dave, David Rosenberg dumps some cold water on the latest spending and income data.
The analysis is a little long, not violently decisive, and not filled with rhetoric, but the kind of in-depth take you need to get beyond the headlines.
U.S. personal income came in below expected, coming in at +0.1% mum 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% mum 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% mum 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% mum 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
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
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 theatres (-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?