-by New Deal democrat
The monthly personal income and spending report is now the most important report of all, except for jobs. That’s becuase it tells us so much about the state of the consumer economy. It is the raw material for several important coincident indicators that the NBER looks at, as well as several leading indicators on the spending side.
And to put this month’s report into the perspective of the imminent baseball postseason, it hit a triple.
To the numbers: in August both nominal personal income and spending rose 0.2%. Since PCE inflation rose 0.1%, both rounded to an increase of 0.1% (graph normed to 100 just before the pandemic) :
If there was any fly in the ointment, it was spending on goods. In historical terms, spending on goods tends to rise more during the early part of an expansion, and be overtaken by real spending on services in the latter part of an expansion. Additionally, spending on services tends to rise even during recessions. So the more important component to focus on is real spending on goods. This was unchanged, but still tied for its all-time high. Meanwhile - par for the course - real spending on services increased 0.2% to another all-time high:
On a YoY growth basis, real spending on services remains slightly higher than real spending on goods, at 3.0% vs. 2.7%.
Prof. Edward Leamer’s business cycle model indicates that spending on durable goods (dark blue, left scale) tends to peak first, before nondurable or consumer goods (light blue, right scale). These were both unchanged in real terms, but both at all time highs (the former excepting the two binge-spending stimulus months in 2021):
As indicated above, PCE inflation was tame, at +0.1%. On a YoY basis, PCE inflation is 2.2%:
This is the lowest YoY rate since February 2021, and needless to say, only slightly above the Fed’s target. To reiterate, the chief difference between this measure and CPI is a much lower weighting given to shelter.
Meanwhile, there was a big positive surprise in the form of multi-year revisions to the savings rate. All this year my one caveat about this report was the low savings rate, for example last month at 2.9%, which was lower than at any other point since the turn of the Millennium except for the 2005-07 timeframe and briefly in 2022.
Well, that all got revised away (red in the graph below), as shown in the long term look since the turn of the Millennium:
As revised, the personal saving rate is currently 4.8%, right in line with the average saving rate for the past quarter century. In other words, my concern about the consumer being stressed by any adverse shock has been revised away!
Finally, as indicated above this report goes into the calculation of two important coincident indicators. The first is real personal income less government transfer payments. This rose 0.1% to another all-time record, and is up 3.1% YoY:
Second, with the usual one month delay, real manufacturing and trade sales rose sharply again, by 0.7%, also to a new all-time record:
This was the second excellent report in a row, with the main concern from earlier this year revised away. The only soft spot was real spending on goods, which continues to grow slightly less than for services, suggesting we are later than halfway through this expansion. Additionally, to the extent it is at all necessary to say it, this completely removes any doubt, contra the usual small cadre of DOOOMers, that we continue to be in an expansion.
