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Economists Miss the Boat Again as Consumer Spending Flatlines

Consumer spending in May was flat as personal income declines again.
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PCE, Personal Income, PCTR 2021-05

The BEA reports personal income is down another 2.0% in May. This follows a 13.1% dip in April. 

Personal spending was flat. The Econoday consensus opinion was for a 0.3% rise. 

Key Details

  • Personal income decreased $414.3 billion (2.0 percent) in May.
  • Disposable personal income (DPI) $436.3 billion (2.3 percent)
  • Personal consumption expenditures (PCE) increased $2.9 billion (<0.1 percent).
  • Real DPI decreased 2.8 percent and Real PCE decreased 0.4 percent; goods decreased 2.0 percent and services increased 0.4 percent
  • Personal outlays increased $5.5 billion.
  • Personal saving was $2.29 trillion in and the personal saving rate—personal saving as a percentage of disposable personal income—was 12.4 percent.
  • The PCE price index increased 0.4 percent.
  • Excluding food and energy, the PCE price index increased 0.5 percent. 
  • The PCE price index increased 3.9% from a year ago
  • Energy prices increased 27.4 percent from a year ago while food prices increased 0.4 percent.
  • Excluding food and energy, the PCE price index for May increased 3.4 percent from one year ago.

Transfer Payments (PCTR)

The charts show three spikes in Personal Current Transfer Receipts (PCTR).

Transfer payments are free money or money equivalents from the Federal government.

The category includes food stamps, a relatively stable transfer payment, and Covid stimulus items (one time and ongoing).

There was a "one time" leap in March of 2020,  another "one time" jump in January of 2021, then a third  "one time" jump in March of 2021.

Spending and income reflect those jumps. 

Pre-Covid vs May 2021

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  • Including PCTR, income rose from $19.116 trillion to $20.804 trillion
  • Excluding PCTR, income rose from $15.905 trillion to $16.550 trillion.
  • Including PCTR, income rose $1.688 trillion over 15 months (8.8%).
  • Excluding PCTR, income rose $0.645 trillion over 15 months (4.1%).
  • Spending rose by $0.772 trillion from $14.887 trillion to $15.659 trillion over 15 months (5.2%). 

Key Takeaway

The last bullet point strongly suggests that most of the spending increase since pre-covid is due to a whopping rise in PCTR, not rising wages.

That Congressional support is now over.

Related Articles

  1. Retail Sales Drop More Than Expected in May But Revisions for April Were Positive
  2. Impact of Three Rounds of Stimulus on Retail Spending Dollars in Pictures
  3. Existing Home Sales Decline 4 Consecutive Months, Lowest Reading in 11 Months
  4. New Home Sales Drop Again in Big Skid Towards Pre-Covid Levels

Those four bullet points show the effects of stimulus have already worn off. 

Contrary to widespread belief, stimulus is not self-feeding. Rather, stimulus dies within one or two quarters.


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