Real Personal Consumption Expenditure (PCE) grew while Real Disposable Personal Income (DPI) contracted. This release shows that the December data (previous month) was distorted by a previous year’s income spike – and that income and expenditure growth correlated this month.
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- The market looks at current values (not real inflation adjusted) and was expecting a PCE (expenditures) rise of 0.0% to 0.3% (consensus 0.1%) versus 0.4% actual, and a rise in DPI (income) of 0.0% to 0.4% (consensus 0.2%) versus 0.4% actual. In other words, expenditures and income were above 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 contracting (up 2.8% year-over-year), and real personal expenditures are up 2.2% year-over-year. The gap between income and expenditure growth remains – and did not statistically widen this month. Expenditures are growing faster than income.
- 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.
- Last week, the second estimate of 4Q2013 GDP indicated the economy was growing at 2.4% (revised down from 3.2%). 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.
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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.
