Highlights
Personal income in February rose notably more than expected but the reason for the jump is largely technical. Meanwhile consumer spending and inflation were soft for the month. Most likely the improvement in inflation is just temporary but the spending numbers are ominous. Personal income in February posted a 0.5 percent gain, following a 0.3 percent increase in January. February's increase topped the market forecast for a 0.3 percent gain. Within personal income, the wages and salaries component advanced a moderate 0.3 percent. However, the reason for the surge in income was a 2.2 percent jump in personal current transfers (various types of government and private sector assistance). Personal current transfer receipts increased $38.2 billion in February, in contrast to a decrease of $4.7 billion in January. The changes in personal current transfer receipts primarily reflect the pattern of federal Medicare part D prescription drug payments, which were down in November through January to recover overpayments that were made in 2006. The payments returned to normal in February. But the consumer is losing steam on the expenditure side as personal consumptions slowed to a 0.1 percent gain in February after rising 0.4 percent the month before. The consensus forecasted only an incremental increase of 0.1 percent in personal spending.

Year-on-year, personal income growth slowed to 4.6 percent from 4.9 percent in January.

The good news in the report at least for now is that inflation paused in February as the overall PCE price index slowed to 0.1, following a 0.3 percent increase in January. The core PCE price index also eased with a 0.1 percent rise in February after a 0.2 percent gain the month before. The latest number for the core fell below the market forecast for a 0.2 percent increase.

Within the 0.1 percent rise in personal spending in February, the gain was led by a 0.3 percent rise in durables and in services. Nondurables fell 0.2 percent. But in inflation adjusted terms, overall spending was unchanged in February after rising a mere 0.1 percent the month before. For now, it looks like the consumer sector is going to be doing very little to keep real GDP growth in positive territory in the first quarter.

The personal saving rate rebounded to plus 0.3 percent from minus 0.1 percent in January.

Today's report shows the consumer sector losing momentum. The consumer sector is no longer a significant factor adding to overall economic growth and is not working to keep the economy out of recession.