The BEA’s personal income and spending report for May shows significant weakening in consumer spending and stubbornly high core PCE price inflation.
Chart Notes
- Real (chained dollars) means inflation-adjusted. The base year is 2012.
- PCE stands for Personal Consumption Expenditures.
- The Fed is watching core PCE which excludes food and energy. PCE was only up 0.1 percent but much of that was a decline in the price of gasoline. The price of rent continues to rise. Rent increases are sticky, gasoline prices aren’t.
Negative Revisions
Last month I commented Real Disposable Income is Flat, But Real Spending Jumps 0.5 Percent
Strike that.
The BEA revised real spending for April from 0.5 percent down to 0.2 percent, and real Disposable Personal Income (DPI) from 0.0 percent to -0.1 percent.
Real Disposable Personal Income and Real PCE
Real DPI Chart Notes
- The red highlights show the three rounds of fiscal stimulus, the last by President Biden was totally unwarranted and fueled a spike in inflation.
- Transfer payments include Social Security, Medicare, Medicaid, and the three rounds of fiscal stimulus.
- The National Bureau of Economic Research (NBER) is the official arbiter of recessions. Real Personal Income Excluding Transfers (RPIET) is a component of the NBER’s recession decision process.
RPIET is weak. It was $14.415 trillion in February of 2020, pre-pandemic, and is $14.703 trillion now. That’s a total rise 2.0 percent in over three years. Since January, RPIET is up a mere 0.5 percent, a very weak rise in income. And most of that increase is due to a drop in PCE rather than core PCE.
GDP vs GDI
Gross Domestic Product (GDP) and Gross Domestic Income (GDI) are two measures of the same thing. They are supposed to match, and will over time, with revisions in at least one of the measures.
Real Final Sales is the bottom line estimate of Real GDP. Yesterday, the BEA released its Third Estimate of First Quarter 2023 GDP and an update on GDI as well.
BEA Highlights
- Real GDP increased at an annual rate of 2.0 percent in the first quarter of 2023 according to the “third” estimate released by the Bureau of Economic Analysis.
- Real gross domestic income (GDI) decreased 1.8 percent in the first quarter, an upward revision of 0.5 percentage point from the previous estimate.
- The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 0.1 percent in the first quarter, an upward revision of 0.6 percentage point from the previous estimate.
The BEA averages GDP and GDI on the basis that it does not know which measure is more accurate. The NBER, the official arbiter of US recessions does the same thing.
However, the NBER is so late in issuing its recession calls, it will be clear which one of the current estimates is more accurate.
Largest Discrepancy in at Least 20 Years
Over the last two quarters GDP has grown at a 2.3% annual rate while GDI has fallen at a 2.6% annual rate.
The weak growth in Real Personal Income Excluding Transfers is supportive of the GDI view of things. A major discrepancy between jobs and employment also supports the GDI view. So does a a significant decline in the average work week.
For discussion of these discrepancies and why the GDI view seems more reasonable, please see Largest Discrepancy Between GDP and GDI in 20 Years
Major evidence, including this report, supports the GDI view, not the robust GDP view.
Is Great To Have These Articles
$18T in silent gen wealth
$75T in boomer wealth
$1.5T fed annual deficit spending
$1.8T 1st Qtr interest income due to higher for longer FFR
Property values still way up giving local governments lots of money to spend
State revenues up probably 60% of the country
NASDAQ up 33% YTD
1st time unemployment claims still averaging well below below 250K YTD
Unemployment of 3.7%
And empirically more vehicles, especially commercial, on the road than you can shake a stick at.
People, MISH ESPECIALLY, you can slice and dice the data all you want, but there’s not a recession anywhere to be found, at least not in 2023.
I wonder how much more of the strategic petroleum reserve senile Joe can drain to keep gasoline prices suppressed. I thought the SPR was to be used only in an emergency. I guess buying votes and manipulating inflation data is now considered an emergency.
Yes, getting reelected is an emergency.
If one goes by precedent, the SPR’s primary function appears to be for political emergencies.
It would seem, based on current crude prices, that the administration is doing everything it can to support oil prices — keep selling from the reserve at a loss until prices recover so the reserve can be filled at a loss!
Mish – WordPress is much cleaner, but the old feature where when someone replied to your comment, you were emailed was nice. I liked that feature because we could engage in conversation.
Since I don’t want to be emailed for every comment made, I turned comments off now. Not as interactive.
Real spending down, nominal spending up. We are in a recession that won’t look like one in nominal dollars. Stock market is priced in nominal dollars and destined to rise while economy declines. imho
Real spending was flat for May. Real spending is up 1.5% year to date.
Fundamentals don’t seem to matter at all. The market just continues to go up even as rates are raised. All of the above has been talked about for over a year now. The recession is coming soon but doesn’t arrive. May of last year, then November, February.
In the interim, since October, the market has been unstoppable. Believing any of the above signs of a coming downturn has proven to be a poor investment choice. I just don’t get it
So for first 5 months of 2023 real income is up 2.5%, that’s pretty damn good. What’s everyone beactching about?
Real consumer spending is going to have a nice pick up from consumers resuming college debt payments. Unless, for some reason, consumer’s spending to repay college debt is not classified as consumer spending. Also, credit card debt should see an increase and perhaps bank loans as strapped consumers look for other ways to satisfy their obligations.
GDI & GDP both correct.
Consumers still spending down COVID relief formal and informal.
Chairman Powell may be waiting on exhaustion of the COVID excess spend to see what happens e.g. then recession per GDI or will GDP recover in time.
Plays out in Q4 2023/ Q1 2024.