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By the Numbers

Featuring brief segments of economic analysis from our senior economist Michael Bazdarich, PhD.

The economic analysis we previously featured in By the Numbers is now available on the Western Asset Blog. This page will no longer be updated.

February Personal Income Soft...In Line with Modest Job Growth

February personal income data released today were relatively soft, with total personal income rising only 0.2% on the month and with the private-sector wage income component declining by 0.2%. The soft February data offset stronger gains in January, but leave average growth rates right around a 3% to 4% nominal trend. This represents enough income growth to keep consumers spending at the growth pace of recent months, but not enough to drive any acceleration in consumption spending.

So, these numbers are a disappointment to those who were looking for the consumer to drive stronger GDP growth in 2016 than the 2.0% average pace we saw in 2015. As reported here nearly a month ago, we were not as impressed as other analysts by the job gains reported for February, and the less-than-stellar nature of those gains is reflected in the torpid pace of income growth as per this morning's numbers.

We do see today's data as being consistent with our forecast line. Again, while the income data are not strong enough to support faster GDP growth, they are enough to maintain steady growth in consumer spending, and that is all that is required to sustain our 1.5% growth expectation.

Finally, we had also been skeptical of the sustainability of the faster inflation that had been reported for the Consumer Price Index (CPI) over the first 2 months of 2016. In our view, with nominal GDP and nominal domestic spending growing at rates of only about 3.5% per year, there simply is not enough spending power in the economy to sustain faster rates of price increase. So, today's news was comforting on that score in that it showed the core Personal Consumption Expenditure (PCE) deflator rising only 0.1% in February, following a 0.3% gain in January. In contrast, the core CPI showed 0.3% gains in both months.

The Fed views the PCE deflator as a more reliable measure of underlying inflation than the CPI, and we concur in that view. The PCE deflator data thus suggest that at least some of the recent upturn in CPI inflation could be a statistical fluke.

Income Growth
US Economic Growth: Real and Nominal
Source: Bureau of Economic Analysis. As of 29 Feb 16

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 45 years of experience to his position. "By the Numbers" will address economic data releases that are pertinent to a broad range of investors.

Prior to joining the Firm in 2005, Mike ran his own consulting firm, MB Economics. He earned his PhD in Economics at the University of Chicago.

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