Between Two Stimulus Checks

Between Two Stimulus Checks

Not surprisingly, given the lackluster read on retail sales the market choked down earlier this month, personal spending for February slumped after a stimulus-fueled rebound in January.

Spending fell 1% last month, worse than the 0.8% drop economists expected. January was revised higher. Incomes dove 7.1%.

“Economic impact payments associated with the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (which was enacted on December 27, 2020) declined sharply in February and unemployment benefits continued, but at a lower level,” the government noted.

The forecast range for consumption was -4% to 0.3%. For incomes, 64 economists’ guesses ranged from a 9% drop to a 3.5% decline.

“Personal spending in both January and March will be influenced by the fiscal bailouts from Washington, which in practical terms implies today’s print of February’s consumption figures will not only represent a lull/give-back, but also be much easier to dismiss,” BMO’s Ian Lyngen and Ben Jeffery said Friday, adding that “investors’ willingness to ignore the inflation data is far less obvious, if for no other reason than it’s such an intricate component to the bear-steepening trend that has defined 2021 thus far.”

On that front, core prices rose an in-line 0.1% from the previous month and 1.4% YoY. Headline PCE prices rose a cooler-than-expected 0.2%. The YoY print there was 1.6%.

One assumes that will be summarily dismissed by the inflation crowd as the proverbial calm before the storm. The reflation crowd (Remember: Inflation and reflation are two different things — the former is just what it sounds like, while the latter is a macro narrative centered around the idea that the world may be emerging not just from the deflationary abyss triggered by the onset of the pandemic, but also the disinflationary environment that’s gripped developed markets for decades) may find the PCE reads underwhelming. If you don’t count last year, core PCE is the most sluggish since the end of 2015.

The release referenced the “other” category, which you can monitor to get a read on the impact of some virus relief measures. “Within government social benefits, ‘other’ social benefits, specifically the economic impact payments to households, decreased,” the government remarked, noting that authorized payments under the CRRSA were mostly distributed in January.

As for consumption, spending on goods dropped $155.9 billion, while spending on services rose $7 billion.

The increase in services primarily reflected increases in housing and utilities and healthcare (mainly hospitals), the BEA said. Spending on food services decreased.

Again, this is easy to write off as a kind of hangover from January with an expected pick-me-up from the new stimulus package reflected in forthcoming data over the next several months.

Americans were between two stimulus checks in February.

“Household spending fell back in February after January’s stimulus-led surge, but March and April are set to rebound on yet more stimulus and a broader re-opening so we’re pencilling in 9% annualized consumer spending growth in the first quarter and 15% in the second,” ING said.


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