Let’s dive into to BEA’s Personal Income and Outlays report for the month of May to see how the consumer is faring.
Key Points
- Personal income increased $113.4 billion (0.5 percent).
- Disposable personal income (DPI) increased $96.5 billion (0.5 percent)
- Personal consumption expenditures (PCE) increased$32.7 billion (0.2 percent).
- Real DPI decreased 0.1 percent in May.
- Real PCE decreased 0.4 percent; goods decreased 1.6 percent and services increased 0.3 percent.
- The PCE price index increased 0.6 percent.
- Excluding food and energy, the PCE price index increased 0.3 percent..
Explanations
- Disposable income means after taxes.
- PCE stand for Personal Consumption Expenditures.
- Real means inflation adjusted using the PCE price index (not PCE spending) as a deflator.
Bloomberg Econoday Consensus Estimates
The consensus estimate for income was on the mark. But the consensus estimate for spending was well off the mark. Factoring in the negative 0.3 percentage point revision (which should have been anticipated as I have been calling for revisions), the result was -0.1 percent notional and -0.7 percent real.
Ignoring the revision, real spending was 0.4 percent.
Real Income and Spending Percent Change
Strong Consumer?
That chart helps explain Fed Chair Jerome Powell’s “consumer is strong” silliness.
Real spending jumped 1.3 percent in January, 0.0 percent in February, then 0.3 percent in March and April. However, the January jump comes on the heels of a 1.8 percent decline in December.
People gave gift cards in December and there was big jump in January reported sales that effectively happened in December.
Merchants only report sales when gift cards are spent, not when purchased.
Disposable Personal Income and Spending Billions
Income and income appear to be growing by leaps and bounds. They aren’t.
It’s important to pay attention to real, not nominal spending because that is the driver for GDP.
Real Disposable Personal Income Billions
Note the three spikes. Those represent three rounds of fiscal stimulus, the first two under Trump and the third and final under Biden.
The last round of unwarranted stimulus coupled with absurd levels of monetary stimulus by the Fed triggered a huge inflationary boom.
Despite the boom triggered by fiscal and monetary spending, real spending still has not returned to the previous trendline.
With stagflation now underway, real spending has peaked this cycle.
I’ve Seen Enough, the US is in Recession Now, Q&A on Why
On June 22, I commented I’ve Seen Enough, the US is in Recession Now, Q&A on Why
This report and the negative BEA revision to first-quarter GDP strengthens my conviction that recession started no later than May.
It’s possible a recession started in the first quarter given negative BEA GDP revisions,
On June 29 I commented The Odds of Recession Starting in the “First” Quarter of 2022 Just Leaped
Despite a huge negative Q1 revision, I am still sticking with May as the recession start. See the above links for an explanation.
Powell: “We understand better how little we understand about inflation”
In case you missed it please see Powell: “We understand better how little we understand about inflation”
Powell is committed to whipping inflation even at the expense of recession. It’s now baked in the cake, sooner not later.
This post originated at MishTalk.Com.
Thanks for Tuning In!
Please Subscribe to MishTalk Email Alerts.
Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.
If you have subscribed and do not get email alerts, please check your spam folder.
Mish
Social Security and Supplemental Security Income (SSI) benefits for approximately 70 million Americans will increase 5.9 percent in 2022.
The 5.9 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2022. Increased payments to approximately 8 million SSI beneficiaries will begin on December 30, 2021. (Note: some people receive both Social Security and SSI benefits)
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2022 is -1.0 percent on June 30, down from 0.3 percent on June 27. After recent releases from the US Bureau of Economic Analysis and the US Census Bureau, the nowcasts of second-quarter real personal consumption expenditures growth and real gross private domestic investment growth decreased from 2.7 percent and -8.1 percent, respectively, to 1.7 percent and -13.2 percent, respectively, while the nowcast of the contribution of the change in real net exports to second-quarter GDP growth increased from -0.11 percentage points to 0.35 percentage points.