The Bureau of Economic Analysis reported a monthly increase of 1.1% in personal income in February. This exceeded expectations of 0.8% from most analysts. This was surprising to most experts because they were expecting a payroll tax increase and Congressional gridlock would be a damper on personal incomes. Additionally, real consumption expenditures and savings also rose. Therefore, that sounds promising for a quick turnaround.
However, a closer review shows some concerns. While real consumption expenditures increased by 0.7%, which suggests that people are starting to spend money. On the downside, it appears that most of the spending activity is a result of people dipping into their savings and is not sustainable. While the personal savings rate increased in January and February at 2.2% and 2.6%, respectively. These savings rates are less than what we saw during the last quarter of 2012, which ranged from 3.4% to 6.1%.
While it appears that the economic performance during the early part of 2013 appears promising, the second quarter might bring some challenges as the effects of fiscal uncertainty and the sequester starts to play a bigger role.