- by New Deal democrat
Yesterday we saw a slew of data releases, including durable and core capital goods orders, jobless claims, personal income and spending, and motor vehicle sales. I reported on all but personal spending and motor vehicle sales yesterday. Today let’s take a look at the last two.
Let me start with the same overview graph I used yesterday, showing a pronounced downturn in real income since early last year (blue) vs. a continued increase in spending (red):
As I pointed out, the difference can be explained by the decline in the personal saving rate to an extreme low:
What are consumers spending on? The order in which such spending has typically peaked in past expansions is: first, durable goods; second nondurable goods; and finally, consumer goods. As I have pointed out many times in the past, real spending on services usually continues to increase, or at least not decrease, even through recessions. So this first graph compares real spending on durable goods (red) vs. goods as a whole (gold) vs. services (blue) for the past several years:
Monthly spending on durable goods peaked at the end of 2024 and declined slightly during 2025. In the past several months it has recovered somewhat. By contrast, spending on goods as a whole continued to trend slowly higher, and spending on services has barely slowed at all.
Here is the same data shown YoY:
Durable goods spending, while volatile, has generally trended close to the 0 line in the past eight months. A historical look at YoY spending on durable goods and goods as a whole shows that, with a few exceptions (notably 1966 and 1987), when spending on durable goods is negative for longer than a month, it typically means a recession is either occurring or at least imminent:
Now let’s look at nondurable goods. Compared with durable goods, spending on nondurable goods (orange) has continued to increase throughout the last year:
On a YoY historical basis, real spending on nondurable goods has not turned negative during most recessions, but the YoY increase has slowed sharply:
In other words, sometimes spending on nondurable goods does peak prior to recessions, but sometimes the growth rate just slows down or turns flat, as shown in the two historical graphs below set in log scale:
If the signal from spending on durable goods is close to recessionary, that on nondurable goods suggests continued expansion in the immediate future.
Which brings us to motor vehicle sales, because they are the quintessential consumer durable good. In general, in the past purchases on passenger cars and pickup trucks (blue) have slowed down noisily before recessions, typically by about 10%, while purchases of heavy weight trucks (red) have slowed first and more sharply:
But just as with spending on durable goods, purchases of heavy weight trucks in particular have rebounded in the past few months:
Purchases of passenger vehicles have picked up slightly, but are within the range of noise and are generally trending sideways.
In sum, real personal spending, unlike real personal income, is not giving a clear recession signal, and if anything has rebounded slightly in the past several months, in particular for durable goods. That is also showing up in the purchases of heavy weight trucks, which tracks with the broader rebound in core capital goods spending, and the noisier uptrend in durable goods orders, as well as other manufacturing series like industrial production and the regional Fed indexes, that we have seen over the past six to eight months. Which, to reiterate, likely has very much to do with the building of massive AI data centers.
