By Carlos Guillen
Equity markets are having a very encouraging trading session as investors have been enthused by the fact that the consumer has remained rather unfazed by the severely cold winter and continued to shop.
Very encouraging today was that consumer spending climbed in February by the most in three months as a pickup in incomes served to overcome any malaise that might have stemmed from the rather harsh winter temperatures and snow. According to the Bureau of Economic Analysis, personal income during February increased month-over-month by 0.3 percent, better than the Street's consensus estimate calling for a 0.2 percent month-over-month rise. Concurrently, personal consumption expenditures (PCE) increased by 0.3 percent, matching economists' average forecast. Given that consumer spending represents about 70 percent of gross domestic product (GDP), this certainly bodes well for first quarter GDP results. Disposable income, or income after taxes, rose 0.3 percent after adjusting for inflation, the most since September of last year. It climbed 2.1 percent from February 2013. Wages and salaries increased 0.2 percent after a 0.3 percent gain.
Perhaps a bit encouraging today was that consumer sentiment has remained fairly consistent despite the rather unusual winter weather. The University of Michigan's Consumer Sentiment March result landed at 80.0, even with the Street's expectation of 80.0, fairly flat with the initial estimate of 79.9 and a bit lower from the 81.6 reached in February. As it stands, the consumer's view of their current finances have remained unchanged from that seen in December. However, consumers did reflect some concern about the slowdown in home value gains.
More encouraging was that consumers see their personal finances improving much more than they did late last year. In fact, one-in-three consumers reported this month that they expect their finances to improve in the year ahead; this proportion was the largest see since June 2009. However, they were becoming increasingly concerned about the outlook for the overall economy. This view was a bit mixed as consumers still see an improving economic backdrop, but they also see ramping risks that make the economy more susceptible to a downturn in the longer term. And as home values are concerned, consumers also expect continuing deceleration of home price gains in the year ahead.
All in all, stocks continue to trade at elevated levels for the session, with the Dow Jones Industrial Average up over 75 points, putting the index on track for another week of gains.