Consumer Spending Trends in February

In February, U.S. consumer spending saw a notable rise as households increased their purchases of both goods and services. However, inflation continued to be a concern, and personal income experienced a slight decline, primarily due to reduced dividend income and government transfers compared to wages.

According to the Commerce Department, personal consumption expenditures, which broadly measure household spending, rose by $103.2 billion—or 0.5%—in February, following a 0.3% increase in January. Spending on goods went up by $58.7 billion, while spending on services increased by $44.5 billion. Notably, a $32.6 billion increase was attributed to auto and parts spending. Health spending saw a rise of $15.7 billion, along with financial services and insurance increasing by $10.4 billion, and transportation services by $9.8 billion. Conversely, some categories like food, beverages, and recreational services experienced declines.

On a year-over-year basis, spending was up by 5.34%, indicating strong consumer demand. This data seems to counter concerns that consumers are feeling the strain of ongoing inflation or hesitating due to worries about job growth slowing down. Perhaps the low unemployment rates, along with ongoing inflation-adjusted wage increases, is boosting consumer confidence in spending.

This spending trend bodes well for companies, with consumer discretionary stocks gaining 1.02% following the report, making them the top performers among the S&P’s 11 sectors, right after utilities.

Despite the increase in spending, personal income dipped by $18.2 billion (0.1%) in February, and personal disposable income also experienced a 0.1% decrease. The Bureau of Economic Analysis noted that this decline was mainly driven by reductions in personal dividend income and current transfer income. Dividend income fell by $39.7 billion, while remittance income decreased by $21.6 billion. A notable part of this decline was linked to a $34.4 billion drop in other government social benefits associated with Affordable Care Act enrollment. On the positive side, compensation did rise, especially in private wages and salaries, with farmers’ incomes also seeing an increase.

Inflation remained elevated, with the personal consumption expenditure price index climbing by 0.4% from the previous month. Similarly, the core PCE index, which excludes food and energy, rose by 0.4% as well. Year-over-year, the composite PCE price index went up by 2.8%, while the core index rose by 3.0%. After adjusting for inflation, real personal consumption expenditures increased by 0.1% in February, suggesting some stabilization in real spending. Compared to the previous year, real consumer spending increased by 2.8%, reflecting a higher-than-usual growth rate.

The report indicates that households maintained a strong nominal spending pace in February, despite high inflation and pressure on incomes from slowing asset income and transfers. Personal spending rose by $106.5 billion for the month, but personal savings decreased to $931.5 billion, leading to a drop in the savings rate from 4.5% in January to 4.0%.