Both Real Personal Consumption Expenditure (PCE) and Real Disposable Personal Income (DPI) grew equal percentages month-over-month. This is the second month that the growth rates were strong, but expenditures are still outpacing income.
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- The market looks at current values (not real inflation adjusted) and was expecting a PCE (expenditures) rise of 0.1% to 0.4% (consensus 0.3%) versus 0.3% actual, and a rise in DPI (income) of 0.1% to 0.1% (consensus 0.2%) versus 0.3% actual. In other words, expenditures and income were at expectations.
- The monthly fluctuations are confusing. Looking at the 3 month trend rate of growth, both income and expenditures are trending up.
- Real Personal Income is up 2.1% year-over-year, and real personal expenditures are up the same 2.1% year-over-year. The gap between income and expenditure growth remains.
- this data is very noisy and as usual includes backward revision (detailed below) making real time analysis problematic – the backward revisions this month were moderate and down in the REAL income and expenditures.
- Yesterday, the third estimate of 4Q2013 GDP indicated the economy was growing at 2.6% (revised up from 2.4%). Expenditures are counted in GDP, and income is ignored as GDP measures the spending side of the economy. However, over periods of time – income and expenditure must grow at the same rate. Usually this differential signals a future slowdown of consumer spending growth.
- The savings rate continues to be low, but was statistically unchanged this month.
The inflation adjusted income and consumption are “chainedâ€, and headline GDP is inflation adjusted. This means the impact to 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 has exceeded the pre-recession peak.
