The US economy has impressively withstood January’s tax increase, at least so far.
With the exception of one disappointing consumer confidence number, nearly all recent US economic reports have come in better than expected. The most recent: last week’s lower initial jobless claims and strong retail sales data, and the US economy looks set to accelerate from last quarter’s anemic growth.
But investors wondering about the outlook going forward for the US economy will want to watch one economic number in particular: February’s personal income figure, which is scheduled for release on March 29th.
Why is this number so important? While consumer resilience to the tax increase can partly be attributed to a stronger labor market, lower savings and low interest rates have also cushioned consumption. For instance, the US personal savings rate has been heading lower for most of the past four years and it plunged to 2.4% in January, the lowest level since late 2007.
But neither low interest rates nor low savings are likely to prove sustainable over the long term. The Federal Reserve is likely to eventually raise rates and without faster personal income growth, consumers are likely to run out of savings, especially considering the massive amount of debt they are still unwinding.