Economic Report: Spending Jumps in January as Savings Rate Fell to Lowest Level since 2013
Monday, February 28, 2022
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Posted by: Alyce Ryan
AICC, through its membership in the Council of Manufacturing Associations, is pleased to present the "Monday Economic Report" from the NATIONAL ASSOCIATION OF MANUFACTURERS (NAM). By Chad Moutray, Ph.D., CBE – February28, 2022 NAM Weekly Economic Toplines: - Personal consumption expendituresjumped 2.1% in January, bouncing back strongly after falling 0.8% in December. On a year-over-year basis, personal spending rose 11.8%. Personal income was essentially flat in January. Total manufacturing wages and salaries rose 0.3% in January, with 5.8% growth year-over-year. The personal saving rate decreased to 6.4% in January, the lowest rate since December 2013.
- Measures of consumer confidence fell in the latest data, largely on inflation concerns. The University of Michigan said that sentiment declined to the lowest reading since October 2011, whereas the Conference Board’s measure was more mixed in its assessments.
- The PCE deflatorrose 0.6% in January. Excluding food and energy prices, the PCE deflator increased 0.5% in January, matching the pace seen over the prior three months. Overall, the PCE deflator has risen 6.18% year-over-year, the greatest increase since February 1982. Core inflation has increased 5.2% since January 2021, the fastest pace of inflation since April 1983.
- The Federal Reserve will wind down its asset purchases, with quantitative easing ending in early March. The Federal Open Market Committee is also likely to increase short-term interest rates as soon as the March 15–16 meeting, with three or four rate hikes expected this year. That first increase is likely to be 25 basis points, at least for now.
- After expanding in January at the slowest pace since October 2020, the IHS Markit Flash U.S. Manufacturing PMIrebounded in February. The index for future output also improved to the strongest reading since November 2020, pointing to optimism about production moving forward despite ongoing supply chain bottlenecks, workforce shortages and pricing pressures.
- The two regional manufacturing surveys out last week moved in different directions. In the Kansas City Federal Reserve Bank’s district, activity continued to expand solidlyin February, accelerating for many key measures. Yet, expected indices for raw material costs and product prices both jumped to all-time highs, suggesting that firms believe sizable inflationary pressures will persist over the coming months.
- In contrast, manufacturing activity slowed to a crawl in February in the Richmond Fed’s district, expanding at the slowest pace since September. Companies continued to be challenged by supplier issues, as indicated by reduced inventories and long vendor lead times. Inflation remained a significant challenge, even with some easing in February.
- New orders for durable goods rose 1.6% to a record $277.5 billion in January. Core capital goods—a proxy for capital spending in the U.S. economy—increased 0.9% to $80.0 billion in January, also an all-time high. Overall, new durable goods orders have jumped 14.1% over the past 12 months, with core capital goods orders growing 10.5% year-over-year.
- The U.S. economy jumped7.0% at the annual rate in the fourth quarter, up from the 2.3% gain seen in the third quarter. The data also show negative impacts from ongoing supply chain disruptions and the spread of the omicron virus, with weaker-than-desired spending on consumer goods and business investment. In addition, reduced fiscal stimulus has led to a drag from government for three straight quarters.
- Overall, the U.S. economy rebounded very strongly in 2021, with real GDP soaring 5.7% following the 3.4% decline seen in 2020. The current forecast for 2022 is for 3.8% growth. However, in the first (or current) quarter, growth will be just 1.5%, largely on omicron, supply chain and pricing pressure challenges.
- The events in Russia and the Ukraine pose a notable downside risk to global growth, which could impact the outlook moving forward, although the extent of this threat will hinge on what happens in the coming days and weeks.
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