Close

May 31, 2013

Personal Income flat, Spending down, Savings Rate down.

May 31, 2013

Personal Income flat, Spending down, Savings Rate down.

Personal Income and Outlays (April 2013)

– Personal Income  Month/Month  0.0%. Previous was +0.2%.

– Consumer Spending  Month/Month -0.2%. Previous was +0.2%.

– PCE Price Index  Month/Month -0.3%. Previous was -0.1%

– Core PCE price index  Month/Month 0.0. Previous was +0.0%.

– Personal Income Year/Year 2.8%. Previous was +2.5%.

– Consumer Spending Year/Year +2.8%. Previous was +3.5%.

– PCE Price Index Year/Year  +0.7%. Previous was +1.0%.

– Core PCE price index Year/Year +1.1%. Previous was +1.1%.

Inflation is well contained, Personal Income is flat but, most importantly, consumer spending was down.  This correlated with yesterday’s revised GDP which showed real per capita disposable income lower. In fact, real per capita disposable income contracted during the quarter at an astonishing -9.03% annualized rate, taking it to a level below where it was two years ago.

The consumer drives the economy and with income flat and social security taking a larger bite out of everyone’s paycheck these is less for the consumer to spend.  This will diminish GDP.

Chicago PMI (May 2013)

– Business Barometer Index -58.7. Previous was 49.0.

This indicates a shift from minimal contraction (any reading <50) to expansion.

University of Michigan Consumer Sentiment (May 2013)

– Sentiment Index  84.5. Previous was 84.7.

This is a survey about consumers’ attitude toward the economy and intent to spend.  If this and the Personal Income/Outlay report are accurate then it could be the case that consumers feel better and want to spend but simply don’t have the disposable income to do so.

If one looks at the Federal Reserve’s report of the savings rate (http://research.stlouisfed.org/fred2/data/PSAVERT.txt) it is ugly.  It has been under 2.5% every month this year.  It had been over 3% every month from January 2008 to December 2012.  It may be the case that consumers are responding to the increase in Social Security tax by spending their savings.  This has longer term negative consequences.