The Week in Review: Spending Falls, Mixed Employment Signals in U.S.

 

The average U.S. consumer is pulling back on spending as mixed signals warn of a volatile job market.

One government report indicated that Americans are earning more than they used to, but those income gains are not translating into larger spending. At the same time, less spending from manufacturers and other companies suggests an economic contraction may be on the horizon.

 

The average U.S. consumer is pulling back on spending as mixed signals warn of a volatile job market.

One government report indicated that Americans are earning more than they used to, but those income gains are not translating into larger spending. At the same time, less spending from manufacturers and other companies suggests an economic contraction may be on the horizon.

Spending, Productivity Fall

Earlier this week, a study by the Bureau of Economic Analysis showed that, despite rising personal income, spending was falling despite expectations of more spending amidst cheaper oil. The BEA reported personal incomes rose by $50.8 billion in January, or 0.3% on a month-over-month basis, but spending actually fell for the second month in a row. In January, personal consumption expenditures fell by 0.2% after falling 0.3% in December, even as disposable personal income rose by 0.4% in January after rising 0.3% the prior month.

While spending is falling, there has also been a reduction in productivity. A separate report on construction by the Census Bureau showed that total construction spending fell by 1.1% in January on a month-over-month basis, rising 1.8% on a year-over-year basis. That expansion was far below expectations, as January 2014 was one of the coldest years on record and saw many work-stops throughout the country as a result.

Additionally, manufacturing fell as the Institute for Supply Management’s PMI, fall to 52.9 in February. New orders were also down.

ADP Sees Strong Employment

While demand constraints are being observed from PCE and PMI indicators, payroll data was significantly more upbeat in February, leading some analysts to argue that January’s softness was an exception and not indicative of the broader trend.

According to private payroll firm ADP, private employment rose by 212,000 positions in February, with most of those gains going to the service sector. Strong demand for services was in the ISM’s non-manufacturing index for February, which rose two points from January’s reading to 56.9. Large gains in employment, imports, prices, and order backlogs support the strong expansion trend, indicating a reversal from the negative trend-line set in January.

Mixed Signals

With ADP indicating a strong labor market, economists were stunned when the Department of Labor announced a surprise rise in weekly initial unemployment claims. Total new claims rose to 320,000, causing the 4-week moving average to rise above 300,000 for the first time in nearly six months.