A few quick things:
Don’t Get It Twisted …. The February Consumption data wasn’t particularly good for a 2nd month as a rising savings rate, weather (unseasonably warm Feb = Utilities Consumption ↓ ... although this will reverse in March) and a higher deflator all weighed on real spending growth.
That headline, however, is belied by conspicuously positive internals. Aggregate Salary and Wage Income growth accelerated to its fastest pace in 22-months at +6.0% YoY, marking a 2nd month of acceleration. Personal Income, Disposable Personal Income and DPI per capita all showed the same trend.
Importantly, the positive income growth trend should persist through at least May as underlying strength and favorable base affects support an acceleration in employment growth.
In other words, this morning’s data was a net negative from a GDP accounting perspective but a discrete positive vis-à-vis the consumption capacity of consumers … and it’s difficult to characterize accelerating income growth and improving household spending capacity as a negative fundamental development.
Long the Rich … The top income quintile holds a disproportionate share of total financial assets and are responsible for a disproportionate share of consumer spending. Empirically, they also show a significant sensitivity to asset price changes. Indeed, with domestic equities largely flat for 2 years into late 2016, spending on high ticket discretionary items collapsed.
It was our contention to start the year that resurgent asset price inflation was likely to drive a positive inflection in higher end consumption. This idea found positive confirmation in the +640 bps acceleration in luxury goods consumption in January and further confirmed by +3.8% YoY growth in February.
In short, Long the Rich mojo remains positive, for now.
RoC’s and “Hard Places....
What do the following have in common?
- Corporate Revenue Growth, Corporate Profit Growth, Employment Growth, Income Growth, Home Price Growth, Capital Goods Orders, Durable Goods Orders, Retail Sales, New Home Sales, High Ticket Discretionary Consumption, Pending Home Sales & Industrial Production.
Answer: “Hard” data that is rate-of-change and 2nd derivative positive.
The spread between the soft and hard data may be remarkably wide, but don’t confuse that with the notion that the preponderance of fundamental macro data isn’t improving at present.
Have a great weekend,
Christian B. Drake
@HedgeyeUSA
