Home -> Law Blog Directory -> Bailout Blogs -> Calculated Risk

Bailout

: Calculated Risk

February Personal Income Flat, Spending Increases

By Anonymous

From the BEA: Personal Income and Outlays, January 2010

Personal income increased $1.2 billion, or less than 0.1 percent ... Personal consumption expenditures (PCE) increased $34.7 billion, or 0.3 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.3 percent in February, compared with an increase of 0.2 percent in January.
...
Personal saving -- DPI less personal outlays -- was $340.0 billion in February, compared with $374.9 billion in January. Personal saving as a percentage of disposable personal income was 3.1 percent in February, compared with 3.4 percent in January.

Stagnant income and increased spending means the saving rate declined again ...

Click on graph for large image.

This graph shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the February Personal Income report. The saving rate fell to 3.1% in February.

I still expect the saving rate to rise over the next couple of years - possibly to 8% or more - slowing the growth in PCE.

The following graph shows real Personal Consumption Expenditures (PCE) through February (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

The quarterly change in PCE is based on the change from the average in one quarter, compared to the average of the preceding quarter.

The colored rectangles show the quarters, and the blue bars are the real monthly PCE.

The increase in PCE in February was fairly strong (a 3.0% annual rate over the last three months). Using the Two Month average method, this suggests PCE growth in Q1 2010 will be around 3.0%. That will be the highest growth rate since Q1 2007, however this is being driven by less saving and transfer payments - not growth in income.

The National Bureau of Economic Research (NBER) uses several measures to determine if the economy is in recession. One of the measures is real personal income less transfer payments (see NBER memo). This declined in February to $9,006.4 billion (SAAR) from $9,020.2 billion in January, and is barely above the low of September 2009 ($9,000 billion).

This graph shows real personal income less transfer payments since 1969.

This measure of economic activity is moving sideways - similar to what happened following the 2001 recession.

To sum it up:

Incomes were stagnant in February.

Spending increased as the saving rate declined.

PCE in Q1 2010 is on track for about 3.0% annualized growth, the fastest pace since Q1 2007

Real personal income less transfer payments is not increasing.

This is a decent report for PCE, but PCE growth is not sustainable without income growth.

Full post as published by Calculated Risk on March 29, 2010 (boomark / email).

Bloggers, promote your law blog by nominating your blog for inclusion in USLaw.com's Law Blog Directory and RSS Reader. Benefits described.

Related Law Articles

Income Tax Changes for 2007
Get Answers to your Income Tax Questions

Vioxx Lawsuits
Vioxx personal injury suits are a seroius concern for Merck and patietns

Construction Site Accidents
Lawsuits related to accidents

The Mortgage Forgiveness Debt Relief Act
Phantom Income Relief on Debt Cancellation

Lawsuits and Settlements

Insignia
26-Inch Flat-Panel LCD TVs Recalled

Smokeless Tobacco Increases Risk of Stroke and Heart Attack
Smokeless Tobacco Increases Risk of Stroke and Heart Attack

Flomax
Increases Risk of Cataract Surgery Complications

COPD Drug
allegedly increases risk of death from cardiovascular and respiratory events.

Oppenheimer Champion Income Fund
OPCHX

Oppenheimer Champion Income Fund
401(k) / ERISA Stock Fraud

Related Searches