Wages Up, But Payrolls Down Since The Pandemic Started

December’s PCE report showed weak consumer spending and solid personal income growth based on monthly data. Specifically, monthly personal income growth was 0.6% which beat estimates for 0.1%. However, November’s growth rate was revised down from -1.1% to -1.3%. That’s an extremely easy comp. Yearly growth rose from 3.5% to 4.1%. Income growth was helped by dividends and the last minute stimulus bill and hurt by the decline in PPP money. There should be a bigger boost in January due to the stimulus. Real disposable income was up 0.2% monthly.

Consumption growth was -0.2% which actually beat estimates for -0.5%. However, it was a pretty bad reading since growth was revised down 3 tenths to -0.7% last month. Real consumer spending was down 0.6%. As you can see from the chart above, spending on services is 7.5% lower than before the pandemic and spending on goods is 5.1% higher. Spending on durable goods is stronger as people improved their homes. Since income went up and spending went down, the savings rate increased. It was up from 12.9% to 13.7%. That’s a very large increase. It looks small on the chart, but it’s substantial and pushed an already high rate higher. 

Headline PCE inflation was up 2 tenths to 1.3% and core inflation was up 1 tenth to 1.5%. Since that’s what the Fed uses, it feels no pressure to hike rates. It’s quite different from the prices paid index in the ISM report and the large rise in commodity prices recently. 

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