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Personal income rose 0.6% to $106.8 billion in February according to the latest report released by the Bureau of Economic Analysis (BEA) on Friday. Disposable personal income rose 0.5% and personal consumption expenditures (PCE) rose 0.2%. The data was gathered in a period directly preceding the severe escalation of the coronavirus outbreak throughout the United States.

Key Takeaways

• Personal income and consumer spending rose in February during a period before the economy was hit by the coronavirus outbreak.
• Core-PCE, the preferred inflation gauge, rose 1.8% annually vs. 1.7% expected.
• The gain in PCE was mostly due to spending on services, which is unlikely to continue in March figures.

Disposable personal income (DPI) rose $88.7 billion, or 0.5%, and PCE rose $27.7 billion, or 0.2%, in February. Real DPI rose 0.4% and real PCE rose 0.1%. The PCE price index saw a 0.1% gain, and core-PCE, which excludes food and energy, rose 0.2% or 1.8% annually vs. 1.7% expected. Core PCE is the Fed’s preferred gauge of inflation, and February saw this metric tick closer to the Fed’s target range of 2% than expected. However, recent disruption to the US economy means this is unlikely to continue. Incomes were higher in February partly due to subsidy payments from the Department of Agriculture, with farm proprietor income rising $34.1 billion in total last month.

The $13 billion gain in real PCE was due to increased demand for services, which saw $18.3 billion more spent in February than January. Electricity and gas in particular saw increased spending. However, the service sector has been hit particularly hard by the coronavirus outbreak, and this metric is likely to see major decline over the coming months. February saw a $7.7 billion drop in spending on goods. The decline was led by reduced demand for motor vehicles, parts, recreational goods, and vehicles. Personal outlays rose $28.4 billion, and personal saving totalled $1.38 trillion in February.

Core PCE #inflation trending higher last 3 months -- from 1.51% last Nov to 1.82% in Feb. Still, remains below #Fed's 2% goal. Has been under that threshold since Oct '18. #economy pic.twitter.com/w835qdQN7R

— hedgopia (@hedgopia) March 27, 2020

Coronavirus Impact

The US is now the global epicenter for the coronavirus outbreak, with no other country estimated to have as many cases, including China. Over 3 million Americans filed for unemployment benefits in the week ended March 21, the worst figure in the history of the state five times with approximately 695,000 applying for welfare during one week in the Great Recession and 700,000 in 1982. As business owners and contractors are typically unable to file for these benefits, the true number of Americans who lost their jobs last week is likely far greater than 3.2 million.

The outbreak is having a severe impact on national industries and services. Many businesses are closed down by government mandate in an effort to contain the virus, and many more are suffering from a lack of foot traffic with people staying in their homes and practicing social distancing and self-isolation across the country.

It is likely that PCE and income figures will slide significantly in March figures and for the months after, and the US is almost certainly headed for recession along with many countries across the world.

Market Reaction

Gold prices have slipped downward in today’s session, still ranging in the low-1600s. Spot gold last traded at $1,623.18/oz, down -1.63% with a high of $1,643.61/oz and a low of $1,615.64/oz. It’s unlikely that today’s PCE figures had an impact on gold prices, as the markets are now looking at data gathered during and after the escalation of the outbreak in March.

It’s possible that traders and investors will take a cautious approach coming into the weekend following the downbeat news such as the US epicenter classification. It was also reported today that UK Prime Minister Boris Johnson has tested positive for coronavirus.