The news from this morning’s personal income and spending report for October and November was almost all good - with one major exception.

To cut to the chase, real income rose slightly, but real spending rose substantially. Which, if you are following basic math, means that consumers dipped into their savings in a very significant way in order to make it happen - which is not a good sign for the future.

Let me start with that last statistic. The personal saving rate for Americans declined -0.3% in October and another -0.2% in November, down to 3.5%. As shown in the graph linked to below, this is the lowest saving rate in the past 60+ years outside of parts of 2022 and 2005-07, plus two months after the 2001 terrorist attacks:

(Click on image to enlarge)

Source

Nominally, personal income rose 0.1% in October and another 0.3% in November. However, because the PCE deflator increased 0.2% in each month, the net result was a real increase of only 0.1% at the end of the two months. Further, once we exclude government transfers, the numbers for the two months are 0.0% and 0.1%, for a similar tepid increase:

(Click on image to enlarge)

 Source 

This is only a 0.2% on net since July, and it remains -0.2% below its peak in April. By itself, this statistic would be consistent with a recession starting last spring.

But the story is completely different as to spending. Nominally that rose 0.5% in each month, which after accounting for the 0.2% deflator for each month, means real personal spending rose 0.3% in each month.

Further, the spending was not limited to services, which tends to rise even during most recessions. Rather, the figures for both total goods spending and durable goods spending were also strong, at 0.3% and 0.% respectively in October and 0.6% for both in November:

(Click on image to enlarge)

Source 

Finally, although I won’t bother with the graph, the 0.2% increase in the deflator for each month means that the YoY% increase for the PCE deflator was 2.8%, in line with most of its readings over the past 12 months. In other words, so measured inflation is not decelerating any more, but is has not been accelerating either.

The takeaway for this very important set of statistics - virtually equal in my view to the monthly jobs report - is that there was no mini-recession during the government shutdown, but that was largely due to consumers reducing their savings (likely another manifestation of the “wealth effect” of sharply rising stock prices) in order to spend on both goods and services. But this doesn’t mean that the economy was doing well. Rather, it was figuratively keeping its head above water as consumers exposed themselves to more risk from an adverse shock by raiding their piggy banks.

More By This Author: