US: Personal income shows solid gains, inflation rising - Wells Fargo

According to analysts from Wells Fargo, today’s report showed solid gains in personal income in February, but also signals of rising inflation. 

Key Quotes: 

“Unseasonably warm weather in February held down spending in February, but income gains suggest the weakness should be temporary. Inflation continues to firm and has returned to the Fed’s target.”

“As expected, income among U.S. households posted another solid gain in February. Personal income rose 0.4 percent, while income growth for January was revised up a tick to 0.5 percent.”

“Spending, on the other hand, came in a bit below expectations, increasing just 0.1 percent. Weakness in utilities consumption once again depressed the headline; this year was the second warmest February in the contiguous U.S. since records began back in 1895.”

“Inflation showed further signs of firming in February. Headline inflation is now above the Fed’s 2.0 percent target for the first time since 2012. The PCE deflator ticked up just 0.1 percent on a drop back in energy prices over the month, but the year-over-year rate rose to 2.1 percent as energy prices have rebounded more than 30 percent over the past year.”

“While inflation is now back to levels more palatable to the Fed, the upturn has taken a bite out of real consumer spending. After adjusting for inflation, personal spending fell for a second straight month in February and has slowed to a 1.9 percent pace over the past three months.”

“Given the weather-related weakness in utilities spending as well as some delays in tax refunds for low- and middleincome earners in February, we expect real consumer spending to strengthen in the quarters ahead.”