U.S. Personal Spending and Incomes Fell More Than Expected in February

U.S. consumer spending fell more than expected in February as parts of the country were paralyzed by the cold and the prior month’s stimulus boost faded.

Personal consumption expenditures fell one percent, a deeper drop than the 0.7 percent forecast by economists. That followed an upwardly 3.4 percent gain in January when households received stimulus checks authorized at the end of 2020.

Incomes fell by even more, dropping by 7.1 percent. That was slightly more than expected. In January, person income jumped 10.1 percent, slightly more than originally reported.

Disposable person income, which is household income after taxes, fell eight percent after rising 11.4 percent in January.

The saving rate—the difference between consumption and income—was 13.6 percent. In the 10 years prior to the pandemic, the raving rate ranged between six and eight percent. In April of 2020, it hit an all-time high of 32.2 percent as businesses were shuttered, the first round of covid relief payments hit bank accounts, and precautionary psychology encouraged Americans to pull back on spending.

Spending on consumer goods fell three percent in February after rising 8.4 percent in January. Spending on service ticked up one-tenth of a percentage point after rising nine-tenths in January, reflecting early easing of state restrictions on businesses.

The decline is likely to be short-lived. Many states eased restrictions on business operations in March and the weather was much more accomodating. Vaccinations are spreading rapidly, easing back on fear and the need to practice isolating social-distancing. And the third round of relief payments hit bank accounts this month, guaranteeing that personal incomes will jump.

Inflation was muted in February. The price index for personal consumption expenditures, the Fed’s preferred gauge of inflation, rose 1.6 percent compared with March of 2020. Core PCE inflation—which excludes food and energy—rose by 1.4 percent year-over-year, a slower pace of price gainst than January’s 1.5 percent.

Wages were flat for the month across the private and public sectors.