by Steven Hansen
The problem with monetary measures is that it is hard to sort out inflation issues. Personal Income and Personal Income Expenditures (PCE) in June 2011 is a monetary measure which is important because it represents a major portion of GDP.
In the USA, the consumer is the economy.
We know from last Friday’s 2Q2011 GDP that the consumer was not expanding in GDP quarter-over-quarter. In terms of real spending (inflation adjusted) expressed as PCE – it appears the consumer was cutting back the whole second quarter.
In other words, the consumer was buying less things. A summary table from the press release:
In the table, the inflation adjusted June 2011 consumption expenditures is highlighted because it is inconsistent with the Econintersect graph. The graph was produced from BEA Table 2.8.6. Real Personal Consumption Expenditures by Major Type of Product, Monthly, Chained Dollars. Logically, the published table in the press release appears to be in error.
Personal income increased $18.7 billion, or 0.1 percent, and disposable personal income (DPI) increased $16.3 billion, or 0.1 percent, in June, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $21.9 billion, or 0.2 percent. In May, personal income increased $23.2 billion, or 0.2 percent, DPI increased $17.6 billion, or 0.2 percent, and PCE increased $5.9 billion, or 0.1 percent, based on revised estimates.
Real disposable income increased 0.3 percent in June, in contrast to a decrease of less than 0.1 percent in May. Real PCE decreased less than 0.1 percent, compared with a decrease of 0.1 percent.
In our view, this data is not warning of a recession. The data has been this negative several times in recent history without being associated with a recession.
In fact, PCE has not forewarned of any recent recession. In the past 20 years this level of PCE has been reached 10 times. Three of the occurrences came during recessions and seven in non-recessionary periods. None of the occurrences happened within the twelve month period preceding a recession.
PCE appears to be a distraction for recession watchers, with a 30% accuracy of indicating a recession has already started and a 70% incidence of indicating a non-recessionary event.
Note: Any statistician will tell you this sample (10) is too small to apply any significant confidence interval to the 30% and 70% historical observations.
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