STALL SPEED: INCOME, SPENDING & CONFIDENCE

Summary: 

  • Both incomes and spending decelerated in February while Core PCE inflation was static at a dovish, stall speed of just 1.1%. 
  • The income/spending deceleration was broad based with some negative weather drag, but the trend is one of deceleration and the primary pockets of spending strength in February are likely to be ephemeral.
  • High End Demand: It turns out that the rich are still pretty rich and high ticket discretionary spending saw a moderate bounce in February.  Wealth effect spending, however, probably continues to ebb.
  • Healthcare Spending:  At ~19% of Total household expenditures, spending on Medical Care matters, and Obamacare is distorting the numbers.  
  • Confidence: March marked a second month of mixed consumer confidence reports. Sentiment continues to meander alongside the dollars descent.  
  • FINALLY!:  Outside of some lagging housing data, all the material domestic, fundamental macro data for February has been reported….enjoy the oversold bounce and blithely enter the weekend knowing the vexatious ubiquity of weather caveat-ed macro releases has finally ended. 

 

STALL SPEED: INCOME, SPENDING & CONFIDENCE - Income   Spending Table Feb

 

STALL SPEED: INCOME, SPENDING & CONFIDENCE - Eco Summary Table 032814

 

 

PERSONAL INCOME:   3 Months of Deceleration

 

Weather probably served as a negative distortion on reported, aggregate personal income in February, but with total Personal Income, Disposable Personal Income (DPI), DPI per capita and Private Sector Salary & Wage growth all decelerating for the 3rd consecutive month in February it feels hard to argue that weather is masking a strong underlying trend of acceleration. 

 

STALL SPEED: INCOME, SPENDING & CONFIDENCE - Personal Income Feb

 

Private Sector Salaries and Wages decelerated by -60bps and -50bps on a YoY and 2Y basis, respectively, while aggregate government sourced wage income accelerated 30bps on a 1Y while holding flat sequentially on a 2Y basis. 

 

Alongside the spending friendly budget deal and ongoing positive state & local government employment growth, we continue to expect government salary and wage income to provide some modest upside to income growth in 2014. 

 

The savings rate ticked up to 4.3% from 4.2% but remains near historical trough levels.

 

The capacity for a further decline in savings to support incremental consumption growth remains very much constrained at current levels.   

 

STALL SPEED: INCOME, SPENDING & CONFIDENCE - Salary   Wages

 

STALL SPEED: INCOME, SPENDING & CONFIDENCE - Savings Rate 

 

CONSUMER SPENDING:  Healthcare & High End Discretionary supported February consumption expenditures.  The former is either transient or likely to be revised significantly and the latter isn’t likely to repeat last year’s performance.   

 

HIGH END DEMAND:  Last month we highlighted the deceleration in demand at the high end as implied by the slowdown in spending on luxury durables. 

 

As it turns out, however, the rich are still pretty rich and high ticket discretionary spending saw a moderate bounce in February (see yesterday’s note for more on the latest income division dynamics - INFLECTIONS OR FALSE POSITIVES?). 

 

The read through here is mixed as the contribution to total durables growth from higher-end discretionary helped mask more broader weakness. 

 

Further, with stocks flat YTD, housing decelerating and the Fed beginning to reign in their explicit, asset re-flation (i.e. wealth effect) policy agenda, the probability for the top income quartiles to provide incremental demand growth (in similar magnitude to last year) seems to be diminishing.

 

STALL SPEED: INCOME, SPENDING & CONFIDENCE - PCE Luxury

 

STALL SPEED: INCOME, SPENDING & CONFIDENCE - Luxury Goods   Contribution

 

HEALTHCARE SPENDING:  DISTORTED, TRANSIENT OR BOTH?

Spending on Healthcare Services has been the notable positive outlier over the last few month and the effect stems largely from the implementation of Obamacare.

 

The reported figures are very much an estimate and the preliminary data are likely to be revised significantly over time as the Census bureau’s quarterly QSS and annual SAS survey’s provide harder data.   

 

With reported Hospital and Outpatient spending both accelerating materially, it could also be that individuals are accelerating medical consumption ahead of ACA implementation and uncertainty around coverage changes. 

 

Either way, in the context of the broader spending data, the takeaway is pretty straightforward – Healthcare Services represent ~19% of total household consumption expenditures and certainly impacts the direction of reported, headline consumption growth.    

 

To the extent that deceleration is the larger trend across the balance of services, a mis-estimation of ACA related spending and/or a significant, transient pull-forward in medical consumption could be materially distorting the prevailing, underlying trend. 

 

Unfortunately, like the now ubiquitous weather asterisk, we’ll just have to hurry up and wait to get a clearer read on the magnitude of the impact. 

 

STALL SPEED: INCOME, SPENDING & CONFIDENCE - Healthcare PCE

 

 

 

CONSUMER CONFIDENCE:  Across the primary survey's, March proved to be a second straight month of meandering for consumer confidence. 

 

The final University of Michigan Consumer Sentiment reading for March declined -1.6pts sequentially to 80.0 – the worst reading in 4 months. 

 

The conference board and Bloomberg Surveys, meanwhile, showed consumer confidence improving by 4pts and 1.6pts, respectively, in March.    

 

Notably, the relationship between the $USD and confidence remains reasonably strong.   The dollar is currently in Bearish Formation (Broken Trade, Trend & Tail) and with growth slowing and commodity inflation accelerating the balance of risk for the currency remains to the downside, in our view.  

 

STALL SPEED: INCOME, SPENDING & CONFIDENCE - USD vs Confidence

 

STALL SPEED: INCOME, SPENDING & CONFIDENCE - Confidence Table 032814

 

 

Christian B. Drake

@HedgeyeUSA

 


SECTOR SPOTLIGHT | Live Q&A with Healthcare Analyst Tom Tobin Today at 2:30PM ET

Join us for this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more