U.S. consumer spending rose solidly in February as households increased purchases of both goods and services, while inflation remained firm and personal income edged lower on declines in dividend income and government transfer payments rather than wages.
Personal consumption expenditures, the broad measure of household spending, increased $103.2 billion, or 0.5 percent, in February after a 0.3 percent gain in January, the Department of Commerce said Thursday. Spending on goods rose $58.7 billion and spending on services increased $44.5 billion. The increase was driven in part by a $32.6 billion rise in motor vehicles and parts outlays. Health-care spending rose $15.7 billion, financial services and insurance increased $10.4 billion, and transportation services climbed $9.8 billion. Food and beverages and recreation services were among the categories that declined.
Compared with a year ago, spending was up 5.34 percent, a strong year-over-year gain. The spending data indicate strong consumer demand, undermining suggestions that consumers have been exhausted by persistent inflation or are retreating due to concerns about slowing job growth. Likely, the historically low levels of unemployment and layoffs and persistent gains in inflation-adjusted wages are fueling consumer confidence.
The spending numbers are promising for business sales. Consumer discretionary stocks rose 1.02 percent following the release of the report, the best performance of the 11 S&P sectors after utilities.
Personal income fell $18.2 billion, or 0.1 percent, in February, while disposable personal income also declined 0.1 percent. The Bureau of Economic Analysis said the drop primarily reflected lower personal dividend income and lower personal current transfer receipts. Dividend income fell $39.7 billion, while transfer receipts declined $21.6 billion, led by a $34.4 billion drop in other government social benefits tied to estimated Affordable Care Act enrollments. Compensation, by contrast, increased, led by private wages and salaries, and farm proprietors’ income also rose.
Inflation remained elevated. The personal consumption expenditures price index rose 0.4 percent from the prior month, and the core PCE price index excluding food and energy also increased 0.4 percent. From a year earlier, the headline PCE price index was up 2.8 percent and the core measure rose 3.0 percent. After adjusting for inflation, real consumer spending increased 0.1 percent in February, indicating a stabilization of real outlays. Compared with a year ago, real consumer spending was up 2.8 percent, a higher-than-typical rate of growth.
The report suggests households were still spending at a healthy nominal pace in February even as inflation stayed sticky and income was pressured by softer asset income and transfers. Personal outlays rose $106.5 billion in the month, while personal saving fell to $931.5 billion and the saving rate declined to 4.0 percent from 4.5 percent in January.
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