The Guest Blog

Crescenzi: Income, Spending, and Torque in the U.S. Economy


Data continue to point to gains in the U.S. economy:

Last Tuesday, chain store sales for the week ended March 23rd were reported by the International Council of Shopping Centers (ICSC) to have increased 3.7% on a year-over-year basis, the largest year-over-year increase in about three years.

The increase is occurring partly because of a pickup in growth in personal income, which through February was up 2.0% on a year-over-year basis, the best since September 2008, according to data released Monday.


The recent pickup in chain store sales is validated also by Monday’s data on personal spending for February, which showed an increase of 0.3%, placing the January and February average for real spending 2.5 percentage points above the Q4 average on an annualized basis, an acceleration from the fourth quarter’s 1.6% rate of gain.

Gains in personal spending will sustain the torque present in the economy, leading to job growth.

Torque dictates movement, and there is a large amount of torque evident in these areas in particular:

1) Non-farm productivity: Best 3-quarter gain in 51 years, indicating a stretched workforce

2) Temporary employment: 5-month gain of 276k workers, or 16.5%, the fastest pace ever

3) Delivery speeds are slowing within the Institute for Supply Management's montly survey of manufacturers, suggesting that companies are having more difficulty keeping up with business

4) Wholesale inventories are at a record low relative to sales, suggesting that businesses need boost output or else risk a loss of market share

I reiterate the theme from my recent notes that these cyclical tailwinds are likely to reinforce gains in risk assets, which accumulated for a year from improving economic data. If as looks likely this torque leads to employment gains, gains in risk assets will of course be reinforced further.

In this second phase, a romance of the idea of an eventual change in monetary policy will be entertained. This will take time—it will take many months of employment gains to convince large numbers of market participants, but these months of gains do not seem far away anymore.

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Tony Crescenzi is Senior VP, Strategist, Portfolio Manager Pimco. Crescenzi makes regular appearances on financial television stations such as CNBC and Bloomberg, and is frequently quoted across the news media. He is also the author of " and co-author of the 1200-page book "."