Since the end of 2015 and start of 2016 personal income has been a rather underwhelming. The March personal income indicator being released Friday, April 29th will give us an insight on expected trends in the economy. As the seasons goes from spring to summer here five things you should look for from this month’s personal income indicator and the ones to follow this summer.
- Steady But Unimpressive Personal Income Growth
The average personal income increase over the past five months has been 0.3 percent. Although there have been no personal income growth increases below 0.2 percent these numbers are still not satisfactory.
According to Mark Hamrick, senior economist at bankrate.com, “the upcoming April jobs report for any indications that wages (or average hourly earnings) are firming further, but expectations aren’t high.”
The overall the personal income growth rate seems to be barely hitting the mark at at consistent 0.3 percent and has not gone above 0.5 percent. As a result look to see personal income growth stay positive and progressive but with a rise in Personal Consumer Expenditures don’t expect to see a repeat of January’s numbers or greater very much in the next few months.
“As long as employment continues to grow we should see improvements in personal income going forward,” says Eugenio J. Aleman senior economist at Wells Fargo Securities.
- Consumer Rate Spending Stays Flat
If one aspect one the personal income indicator were to win the award for constant disappointment personal consumptions expenditures would have won the award every month from November 2015 to February 2016. In November the percent increase was only 0.2. In October it was 0.4 while in December, January and February the increase was the same at 0.1. The last three months were rather disturbing but if nothing else they remind us of the fickleness of this indicator. Thus, you can expect to see the rate of consumer spending continue to stay flat with in the range of 0.2-0.4 percent in the March numbers and throughout out the summer.
- Disposable to Income Remains Weak
Now who doesn’t love some added disposable income? The DPI percentages in October, November and most recently February showed increases of 0.2 percent. The months of December and January left many optimistic with percent increases between 0.3 and 0.4. However, with the rather mediocre performance of the personal income indicator expect percent increase to what was seen in early 2016. However, keep your hopes high that if personal income makes stronger than expected growth there will also be growth in the DPI percentage.
- Dismal Savings Rates
Americans just don’t save! If you are a fanatic of the personal income indicator and dive into it more than the average reader the lack of growth in disposable income rates should concern you. In the Past five months the savings rates have been more saddening than encouraging. In October 2015 there was 0.1 increase that was overshadowed by the 0.2 percent decrease in the savings rate the following November. Months December through February respectively showed percent increases of 0.1 , 0.3 and 0.1. These moderate increases forecast similar behaviors in the coming months.
“The savings story is worrisome, because it does not show confidence in the future and that is, perhaps, the biggest risk for the rest of the year,” said Aleman.
If the savings rates edges over 5.4 percent, it is a double edge sword. Yes an increase savings rate is amazing but when consumers solely save they are reluctant to enter back into the retails sales arena.
“If there is weaker than expected consumer spending since the start of the year would be absolutely disappointing.. It shouldn’t necessarily surprise us if the consumers holdback, says Hambrick.”
The 2015 holiday shopping season was also a letdown. And as we step back from these figures, the first quarter is looking weaker than what we’d thought before. The Federal Reserve Bank of Atlanta’s GDP Now estimate, which is meant to be a current gauge of growth, has been downgraded to just 0.6% for the first quarter. That’s down from 1.4% just a few days earlier.”
- Expect to See The Fed Make a Decision on Interest Rates
So I know you have missed Janet Yellen and truthfully most economist in the nation are awaiting her arrival more than rain in the Sahara. Yellen’s last memorable moment on television was when graced us with her presence in December 2015. Then we saw a raise in the target range for the federal funds rate from ¼ to ½ percent. The increase was pivotal to supporting progress in the conditions of the labor market and the return to inflation to 2%.
Steady progress in personal income growth and in the savings rate over the past five months makes it highly likely that Janet Yellen could pay visit to television screens everywhere and tell us something new about interest rates. In fact as per the The Federal Reserve April 27th, 2016 press release,it has decided to delay adjusting rates until June .
According Hambrik, the reason for the delay is that members of the Federal Open Market Committee aren’t seeing all of the green lights flashing that they’d like.
The next two months and the changes that we see that occur in the labor market are now more crucial then ever to the decisions that the Fed will make in June.
One Thing Extro to look into- Oil is a factor
Oil rates present a wonderful insight to the growth of the economy.
“The recent resurgence in crude oil and gasoline prices affirms consumers’ notions that they can’t bet that the previous declines will stick. Some will see that as evidence for caution as well, said