February 2021 Real Income And Expenditures Declined

  • Real Disposable Personal Income is up 3.4 % year-over-year, (down 7.1% month-over-month) and real consumption expenditures are down 2.1 % year-over-year (down 1.0 % month-over-month)..
  • The latest 4Q2020 GDP estimate indicated the economy was expanding at 4.3 % (quarter-over-quarter compounded). Expenditures are counted in GDP, and income is ignored as GDP measures the spending side of the economy. However, over periods of time - consumer income and expenditure grow at the same rate.
  • The savings rate is 13.6 % (down from last month's 19.8 %) - this rate was elevated because many investments have been turned into cash.

The inflation-adjusted income and consumption are "chained", and the headline GDP is inflation-adjusted. This means the impact on GDP is best understood by looking at the chained numbers. Econintersect believes year-over-year trends are very revealing in understanding economic dynamics.

Per capita, inflation-adjusted expenditure is in contraction.

Seasonally and Inflation-Adjusted Expenditure Per Capita

The graph below illustrates the relationship between income (DPI) and expenditures (PCE) - showing clearly income and expenditures grow at nearly the same rate over time.

Indexed to Jan 2000, Growth of Real Disposable Income (blue line) to Real Expenditures (red line)

The short-term trends are mixed depending on the periods selected.

Seasonally Adjusted Spending's Ratio to Income (a declining ratio means the consumer is spending less of its Income)

PCE is the spending of consumers. In the USA, the consumer is the economy. Likewise, personal income is the money consumers earn to spend. Even though most analysts concentrate on personal expenditures because GDP is based on spending, increases in personal income allow consumers the option to spend more.

There is a general correlation of PCE to GDP (PCE is a component of GDP).

Seasonally and Inflation-Adjusted Year-over-Year Change of Personal Consumption Expenditures (blue line) to GDP (red line)

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