Implications: Consumers continued to flex their growing purchasing power in February. In nominal terms, spending increased 0.7% in February and is up at a 5.4% annual rate in both the past three months and the past six months. We expect this trend to continue. Private-sector wages and salaries plus small business profits are up 5.3% in the past year. Meanwhile, consumer balance sheets are much healthier. Financial obligations – monthly payments like mortgages, rent, car loans/leases, as well as other debt service – are the smallest share of disposable income since 1995. However, the recent acceleration in inflation is eroding some of this purchasing power. Consumption prices (including food and energy) are up at a 4% annual rate in the past three months, the fastest pace since the commodity-price spike of early 2008. As a result, "real" consumer spending, which is up at a healthy 2.7% annual rate in the past six months, is up at only a 1.4% rate in the past three months. We see this as a direct result of an overly loose monetary policy from the Federal Reserve. In other news this morning, pending home sales, which are contracts on existing homes, increased 2.1% in February. This suggests closings on existing homes should rebound in March after the large decline in February.
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Posted on Monday, March 28, 2011 @ 9:39 AM
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