Tuesday, March 30, 2010

Personal Income Unchanged and Spending Up

From the BEA:

Personal income increased $1.2 billion, or less than 0.1 percent, and disposable personal income (DPI) increased $1.6 billion, or less than 0.1 percent, in February, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $34.7 billion, or 0.3 percent. In January, personal income increased $30.4 billion, or 0.3 percent, DPI decreased $26.0 billion, or 0.2 percent, and PCE increased $38.5 billion, or 0.4 percent, based on revised estimates.

Real disposable income increased less than 0.1 percent in February, in contrast to a decrease of 0.4 percent in January. Real PCE increased 0.3 percent, compared with an increase of 0.2 percent.

Let's go to the data. Click on all images for a larger image.

Total compensation has been increasing since September.

But the increase is not coming from the manufacturing sector. This part of the economy has been hit very hard in the recession, meaning there is very little upward wage pressure. But also note this is a small section of the economy -- total goods producing wages account for 13.23% of total compensation.
With the exception of November, total service compensation has been increasing since July of last year. This sector accounts for 51% of total compensation.

Transfer payments have also been increasing.

Let's turn our attention to expenditures.

Real PCEs have been increasing since September.
The largest component of expenditures is on services, which account for 65.66% of all expenditures. With the exception of November, this category of expenditures have been increasing since last July.

Expenditures on non-durable goods (which account for 22.21% of all expenditures) rose steadily until December, but have risen for the two months since December.

Real durable goods purchases (which comprise the smallest amount of all PCEs) are in a funk. But that is to be expected in this kind of economy. Durable goods typically require longer-term financing. Households are currently lowering their debt ratios and are also concerned about the economy as a whole, leading to less spending on more expensive items.

The increases in PCEs are a prime, underlying reason for the increase in stocks related to consumer expenditures. For example

The XLYs (consumer discretionary stocks) are in a clear uptrend (line A). Also note the bullish EMA picture -- all the EMAs are moving higher, the shorter EMAs are above the longer EMAs and prices are above all the EMAs. The momentum is topping out, however (C), although there is still plenty of money flowing into the ETF (D).

The same analysis applies to the retail holders trust.