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Consumer spending increased by +0.4% in February, coming in below street estimates of +0.5%. This comes after January's results (-0.3%), which were the worst in almost four years.

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Spending is up 5.3% in the past year, but that is down from the 5.8% reading from the start of the year.

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Spending on services grew 0.2% in February, an 18-month low. The monthly growth rate has fallen from 0.6% in December to 0.4% in January, and then to 0.2% in February.

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Spending on goods grew 0.9% in February, after declining -1.7% in January.

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Adjusted for inflation, real consumer spending only rose by 0.1% in February, after declining by -0.6% in January. Which means the bulk of February's spending increase was entirely due to rising prices.

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Consumers pulled back on charitable giving (-$15.8 billion), and dining out (-$15 billion). These are the first discretionary items to typically get cut back during times of duress.

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Core PCE, the Fed’s preferred method of monitoring inflation, increased by +0.4% in February. This reading was worse than expected, at a 13-month high.

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Over the last 12 months, core PCE is up 2.8%, remaining stubbornly above the Fed’s 2% target.

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On a positive note, personal incomes rose +0.8% in February, handily beating street expectations. Incomes have risen above the rate of inflation for the tenth straight month now.

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Meanwhile consumer sentiment was revised even lower for March, from 57.9 to 57, while inflation expectations have shot up to 5%. This is meaningful. The 12% monthly decline in sentiment is the worst since June 2022.

Joanne Hsu, survey director, stated the following:

“This month’s decline reflects a clear consensus across all demographic and political affiliations; Republicans joined independents and Democrats in expressing worsening expectations since February for their personal finances, business conditions, unemployment, and inflation.

Notably, two-thirds of consumers expect unemployment to rise in the year ahead, the highest reading since 2009.”

More on this to come in Sunday's “surveying the week ahead” post.

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