New Record High In Wages And Salaries

Income & Consumption Fall

The November PCE report came out a couple of days early because of Christmas. It’s in line with the other data we’ve gotten which shows November wasn’t a great month for consumer spending. As you can see from the chart below, real personal incomes excluding benefits from the government are back below where they were at the start of the year (0.7% lower). Including transfers, incomes are 2% higher than before the pandemic. 

Personal income growth was -1.1% monthly which missed estimates for -0.3%. The positive spin here is the personal income miss was due to an 8.5% drop in proprietor’s income. Private wages and salaries growth was 0.4%. In nominal dollar terms, they beat the February high.

Real disposable income fell 1.3% monthly and was up 3.1% yearly. Personal consumption expenditures were down 0.4% monthly which missed estimates by 2 tenths. The chart above shows real consumer spending is 2.7% below pandemic levels. 

Spending on goods is 7% higher than before the pandemic because of home improvement and outdoor activities. Spending on services is down 7.1% because gathering is still discouraged. Interestingly, spending on goods fell more in November, but we all bet that reverses in December.

This holiday season was still focused on material items as opposed to experiences. Few trips and concerts were purchased. Monthly spending growth on recreation, food & beverages, and healthcare were 1.4%, 0.9%, and 0.8%. The worst areas were clothing and footwear which had a 4.8% decline and food services which had a 4.1% decline. 

2021 will be an amazing year for restaurant and clothing sales. People will want to get back what they missed. The personal savings rate fell from 13.6% to 12.9%. It was 8.3% in February. This chart looks just like the change in bank accounts. They are shrinking and people have less room to save. We all want people to spend more because they are more confident not because they don’t have any money to save.

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