What if the cavalry stays home? Consumer not saving Q1 growth

Summary

With one month left in Q1, there is still room for hope, but so far, consumers are not coming to rescue economic growth as they have so many times in recent years. Despite weaker-than-expected spending, core PCE inflation is on the rise again.

Rising income a Silver lining

If you were looking for a port in the storm wrought by elevated uncertainty, today's personal income & spending report for February is not your safe harbor. In prior periods of stress in the current cycle, the resilient consumer has saved the day. There is still time for a rebound, but at the moment Q1 is shaping up to be an ugly one without the usual assist from personal consumption.

That is not to say that today's report was bereft on any good news. Income growth was broad and supported by decent wage gains. In fact real disposable income rose by 0.5% in February, the biggest monthly pop in over a year. Another positive is that the contribution from various income sources was widely dispersed and in-the-black. The largest income gains came from transfer payments and rental income, but wages & salaries were up as well as was proprietors income, albeit only modestly for that last one.

To judge from consumers' own reported inflation expectations which have been rising, they are going to need the extra support. Increasingly, households are banking more of their income in what is a firmer measure of their true expectation of rising costs. The saving rate rose to an eight-month high (chart).

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