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The Impact on Spending of Three Rounds of Free Money is Waning

Disposable personal income decreased slightly in June. Spending held up, but the trends and data points are not favorable.
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PCE, Personal Income, PCTR 2021-06

Personal Income and Outlays

Today the BEA released its Personal Income and Outlays report for June 2021 including an Annual Update.

Key Items

  1. Personal income increased $26.1 billion (0.1 percent) in June.
  2. Disposable personal income (DPI) decreased $2.6 billion (less than 0.1 percent)
  3. Personal consumption expenditures(PCE) increased $155.4 billion (1.0 percent).
  4. Real DPI decreased 0.5 percent in June and Real PCE increased 0.5 percent
  5. The PCE price index increased 0.5 percent. 
  6. Excluding food and energy, the PCE price index increased 0.4 percent

I will do a separate report on real numbers and price indexes. 

Personal Current Transfer Receipts

PCTR (Black line on chart) stands for Personal Current Transfer Receipts. 

It consists of items like the Food Stamp program now called Supplemental Nutrition Assistance Program (SNAP). PCTR also includes three rounds of stimulus checks.

The three spikes in income represent three rounds of pandemic assistance that went out indiscriminately whether one had a job or not. 

In turn, those PCTR spikes (Black line) directly fed spikes in income (dark Blue line). 

The Red line shows personal income minus PCTR and the Green line shows consumer spending. 

Pre-Pandemic (February 2020 vs June 2021)

  • Income: 19,006 Then, 20,414 Now (+7.41%)
  • Income Minus PCTR: 15,798 Then, 16,348 Now (+3.48%)
  • PCTR: 3,208 Then, 4,067 Now (+26.78%)
  • Spending: 14,785 Then, 15,772 Now (6.68%)
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That 6.68% is over 16 months. It was supported by three rounds of stimulus.

The last spike of free money took spending from 14,700 to 15,459 in March of 2021 (a leap of 5.16% in a month). 

Since then, spending rose from 15,459 to 15,772 (an increase of 2.02% in three months).

That's a robust increase but its waning. It also reflects still elevated PCTR vs pre-pandemic as well as millions of people making more being unemployed than they did employed.  

Federal unemployment assistance ends in September in all states and already ended in July in many Republican states that voluntarily opted out of the program due to worker shortages.

Looking Ahead

Yesterday, I reported US 2nd-Quarter GDP Exceeds Pre-Pandemic High But Huge Concerns Remain

Among those concerns are evictions, the end of huge unemployment insurance benefits, and a rise in the Delta variant of Covid. 

Expect a rapid deceleration of growth in the second half of 2021.


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