This morning’s better than expected read on consumer spending in February provides plenty of evidence of resilience in the U.S. economy. Importantly, the data improves the odds of positive revisions to current quarter GDP growth expectations.
The monthly Personal Income & Outlays report showed that both Personal Incomes and spending grew at better than expected rates in February. Consumer spending increased at a 0.8% pace, compared to January’s 0.4% growth pace. The January gain was revised upwards from the original 0.2% pace.
Since consumer spending accounts for more than two-thirds of the GDP, this morning’s favorable consumption data will likely prompt positive revisions to current growth expectations of about 2% for the first quarter. This is particularly welcome given lack of positive revision in Thursdays final read on fourth quarter 2011 GDP.
The Personal Income component of today’s report showed a 0.2% increase, roughly in-line with expectations. Income gains have been fairly modest lately, despite the strong recent payroll gains. As a result, the personal savings rate has been coming down, reaching its lowest level in more than two years to 3.7% in February from 4.3% in January.
Bottom line, this is a positive report for the market. But it may not be enough to decisively push stocks higher all by itself today. The favorable news out of Europe this morning on the permanent bailout fund should also help. But I feel that stocks will remain in a wait-and-see mode, though with a modestly positive bias, ahead of next week’s reports.
What do you think?
Source: Zack's Research
