For the second month in a row, personal disposable income (DPI) grew at a faster rate, advancing 0.4% in March—the best pace so far this year, according to today’s update from the U.S. Bureau of Economic Analysis. It’s also the first month since December that DPI growth exceeded the increase in personal consumption expenditures, which gained 0.3% last month.
The improvement comes after months of sluggish growth in DPI, a downshift that has weighed on the year-over-year rate for this series and thereby darkened expectations for the broader economy. But with today’s update, it’s tempting to consider the possibility that income growth has found a floor. If so, the stability will help alleviate fears that a new recession is lurking.
Technically, DPI’s annual percentage change last month fell for the sixth straight month (2.77% in March vs. 2.83% in February). But rounding those changes to one decimal point reveals the first time that DPI’s annual pace has dropped since last August. The bigger test will come in a month, when we’ll learn if today’s DPI news was a fluke or not.
Meantime, some analysts are already changing their views. “This [income and spending] report sets up fairly well for the second quarter,” predicts Peter Newland, a U.S. economist at Barclays Capital Inc. “What was encouraging was that the income numbers improved. Our expectation is that job growth does increase gradually.”
“The trend is good from the perspective that incomes are outpacing spending, so we don’t see consumers dipping into savings as much,” advises Kathy Lien of GFT Forex. “Of course, markets like increased spending, but in this situation it’s a healthy trend in terms of reducing household debt levels.”
With all of the major economic reports for March published, it’s clear that the U.S. economy avoided a recession in the first quarter. But it’s also true that growth turned wobbly—job growth slowed sharply last month, for instance. Does that spell trouble for April and the months ahead?
The week before us will deliver the first round of statistical clues, starting with tomorrow’s update on the ISM Manufacturing Index for April. Briefing.com reports that the consensus forecast calls for a slight retreat vs. March, but at a reading that’s still comfortably in the growth camp. The big news is scheduled for Friday: the payrolls report for April. The consensus view sees a modest improvement over March’s disappointing pace. That’s better than another decline, of course, but if private-sector job growth is now running at well under 200,000 a month, as per the forecast for April, the crowd’s capacity for digesting disappointment will remain low.
Why is economic growth running at a slower pace these days? The warm winter theory remains a popular explanation. “Companies that did not fire as many workers as usual do not have to hire as many workers as we go into the spring season,” BNP Paribas economist Yelena Shulyatyeva tells Marketwatch. “A good example is in construction. Builders did not have to stop working because of the record warm weather.”