February Real PCE Up 0.1% but March Plunge to Come

Real Personal Consumption Expenditures rose by 0.1% in February, a second straight gain and a positive for first quarter consumption and GDP, the Commerce Department reported Friday.

Unfortunately, it won’t stay that way, as social distancing will cut severely into March PCE, enough to more than offset the modest gains in the first two months of the year.

The data released on Friday by the Bureau of Economic Analysis showed that personal income rose by 0.6% in February following January’s 0.6% increase. Wages and salaries rose by 0.5%, but earnings will be another victim of the economic shutdown in March. There were also gains in proprietors’ income, rental income, and transfer payments. The latter may be the one plus in the March and April data, depending on how BEA categorises the stimulus payments.

Current dollar PCE rose by 0.2% in February, lifted by a solid gain in services spending offset a decline in goods spending.

While the anticipated spending pullback in March will impact goods spending, the services sector is likely to take the biggest brunt. Social distancing prevents practically every service from being performed, with the obvious exception of health care.

PCE prices rose 0.1% in the month, the same as the January increase, keeping the year/year rate at 1.8%.

The closely watched core PCE price index rose by 0.2% in February for the third straight month. The year/year rate ticked up to 1.8%, the largest 12-month gain since August.

Inflation is obviously not the highest priority for the Federal Reserve at the moment. The core rate still sits below the 2% target and should remain there until demand improves, even with the massive stimulus being pumped into the economy.



Colin Lambert

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