Real Income and spending data from the BEA, chart by Mish

The Bureau of Economic Analysis (BEA) released Personal Income and Outlays data for January of 2023 today.

Chart Notes

• DPI stands for Disposable Personal Income
• Disposable Income means income after taxes
• PCE means Personal Consumption Expenditures, consumer spending
• Real means inflation adjusted by the PCE Price Index, not the CPI

Transfer Payments 

Transfer payments are redistributions of money for which there are no goods or services exchanged. 

Social Security, Medicare, Medicaid, and food stamps (now called SNAP) are examples of transfer payments.

Real Income Less Transfer Payments (RILTP) is part of what the NBER looks at when determining recessions. RILTP has been weak.

Real PCE Three Ways

Real Personal Consumption Expenditures (PCE) data from BLS, chart by Mish.

Both goods and services spending took a huge leap in January. Income does not support this spending.

Real Income and Spending

I added a new line to that chart today, Real Personal Income Excluding Transfers.

Government handouts have kept the economy going, at the expense of a rise in inflation.

Let's hone in on that idea. 

Real Disposable Personal Income Chart Notes

• Real PCE went from 13,314 pre-Covid to 14,341, a rise of 7.7 percent
• Real DPI went from 15,233 pre-Covid to 15,568, a rise of 2.2 percent
• RPI Excluding Transfers went from 14,414 pre-Covid to 14,745, a rise of 2.3 percent.

Those numbers are over nearly a 3-year period. 

Spending has risen about 5.5 percentage points more than income over a nearly three-year period. This behavior will not last and it will be instant recession as soon as it happens.

This assumes we are not already in recession although there is strong evidence that we are.

Recession When?

This morning I commented Significant Negative GDP Revisions for 2022 Q4 Are Consistent With Recession

Numbers to Watch

GDP was revised lower to 2.7 percent. But the bottom line estimate is Real Final Sales (RFS) at 1.2 percent.

The difference between Real GDP and RFS is inventory adjustment that nets to zero over time.

RFS to private domestic purchasers was a mere 0.1 percent. The rest was an inventory build and an increase in government spending. 

Industrial Production

Note that Industrial Production Much Weaker Than Expected, With Negative Revisions Too

As I have commented many times, heading into recessions the revisions will tend to be heavily negative.

Coming out of recessions will tend to be positive.

Money Supply 

Money supply also suggests recession. 

For discussion, please see Comments From Lacy Hunt on the Fed's Current Money Supply Numbers

Long Period of Weakness

Data is consistent with a weak recession. That has been my forecast all along.

On August 19, 2022, I wrote Expect a Long Period of Weak Growth, Whether or Not It's Labeled Recession

That's still my call. We may flirt in and out of recession or near-recession for years.

Unlike others I do not see a huge rise in the unemployment rate. And if not, data will keep the Fed higher for longer than many think, also contributing to overall weakness.

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