Personal Income and Spending: The Latter Much Weaker Than Expected in May

Bloomberg Econoday consensus, highlights and annotations by Mish.

Let's dive into to BEA's Personal Income and Outlays report for the month of May to see how the consumer is faring. 

Key Points 

• Personal income increased $113.4 billion (0.5 percent).
• Disposable personal income (DPI) increased $96.5 billion (0.5 percent)
• Personal consumption expenditures (PCE) increased$32.7 billion (0.2 percent).
• Real DPI decreased 0.1 percent in May.
• Real PCE decreased 0.4 percent; goods decreased 1.6 percent and services increased 0.3 percent.
• The PCE price index increased 0.6 percent. 
• Excluding food and energy, the PCE price index increased 0.3 percent..  

Explanations

• Disposable income means after taxes.
• PCE stand for Personal Consumption Expenditures.  
• Real means inflation adjusted using the PCE price index (not PCE spending) as a deflator.

Bloomberg Econoday Consensus Estimates 

The consensus estimate for income was on the mark. But the consensus estimate for spending was well off the mark. Factoring in the negative 0.3 percentage point revision (which should have been anticipated as I have been calling for revisions), the result was -0.1 percent notional and -0.7 percent real. 

Ignoring the revision, real spending was 0.4 percent. 

Real Income and Spending Percent Change 

Real Income and Spending percent change, data from BEA, chart by Mish

Strong Consumer? 

That chart helps explain Fed Chair Jerome Powell's "consumer is strong" silliness.

Real spending jumped 1.3 percent in January, 0.0 percent in February, then 0.3 percent in March and April. However, the January jump comes on the heels of a 1.8 percent decline in December. 

People gave gift cards in December and there was big jump in January reported sales that effectively happened in December. 

Merchants only report sales when gift cards are spent, not when purchased. 

Disposable Personal Income and Spending Billions

Nominal Income and Spending in billions, data from BEA, chart by Mish

Income and income appear to be growing by leaps and bounds. They aren't.

It's important to pay attention to real, not nominal spending because that is the driver for GDP. 

Real Disposable Personal Income Billions 

Real Income and Spending in billions, data from BEA, chart by Mish

Note the three spikes. Those represent three rounds of fiscal stimulus, the first two under Trump and the third and final under Biden. 

The last round of unwarranted stimulus coupled with absurd levels of monetary stimulus by the Fed triggered a huge inflationary boom. 

Despite the boom triggered by fiscal and monetary spending, real spending still has not returned to the previous trendline. 

With stagflation now underway, real spending has peaked this cycle.  

I've Seen Enough, the US is in Recession Now, Q&A on Why

On June 22, I commented I've Seen Enough, the US is in Recession Now, Q&A on Why

This report and the negative BEA revision to first-quarter GDP strengthens my conviction that recession started no later than May. 

It's possible a recession started in the first quarter given negative BEA GDP revisions,

On June 29 I commented The Odds of Recession Starting in the "First" Quarter of 2022 Just Leaped

Despite a huge negative Q1 revision, I am still sticking with May as the recession start. See the above links for an explanation. 

Powell: "We understand better how little we understand about inflation”

In case you missed it please see Powell: "We understand better how little we understand about inflation”

Powell is committed to whipping inflation even at the expense of recession. It's now baked in the cake, sooner not later.