by Steven Hansen
Personal Consumption Expenditure (PCE) is the spending of consumers. This spending is the order of magnitude of the size of GDP, and roughly 60% of PCE spending ends up being counted in GDP. In the USA, the consumer is the economy.
What a difference one month makes. June 2011 data had us talking about a recession with three straight months of inflation adjusted PCE contraction. Now the July 2011 data comes out with the largest increase since December 2009.
As this data is noisy, I have added a three month rolling average (red line). One month of data is interesting – but not conclusive. Because of backward revision, we now have three months of improving data with the worst month in April 2011.
This huge PCE gain can be laid squarely on Durable Goods. This coincides with the CMI (Consumer Metrics Institute) reports (articles by Rick Smith) increase in their index which tracks durable goods sales on a daily basis. The CMI Daily Growth Index has been strong for the past three months.
The press release for PCE:
Personal income increased $42.4 billion, or 0.3 percent, and disposable personal income (DPI) increased $32.5 billion, or 0.3 percent, in July, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $88.4 billion, or 0.8 percent. In June, personal income increased $27.7 billion, or 0.2 percent, DPI increased $22.6 billion, or 0.2 percent, and PCE decreased $14.3 billion, or 0.1 percent, based on revised estimates.
Real disposable income decreased 0.1 percent in July, in contrast to an increase of 0.3 percent in June. Real PCE increased 0.5 percent, compared with a decrease of less than 0.1 percent.
This personal income and personal consumption expenditure data by itself is not a good tool to warn of an upcoming recession. Last month Econintersect showed 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.
The fall in inflation adjusted (chained) personal income has no apparent explanation. It has both good and bad implications (improvement in global competitive wages but a decline in future ability of consumers to consume).
Readers are warned that this article is based on seasonally adjusted data. Non-adjusted data is not available. Econintersect has concerns that seasonally adjusted data is accurate in the New Normal.
The above graph plots year-over-year data instead of month-over-month which is likely a more accurate approach to understanding PCE. Here too, the data seems to be clearly in an improvement cycle beginning in April 2011. Overall, this data removes one point of reference for the recession-for-lunch-bunch.
Analysis Blog articles on GDP
CMI: Weighted Composite Index is Strong by Rick Davis
Obama Stimulus May Have Gotten It Right After All by Steven Hansen
It’s Time for a New Measure of Economic Growth by Martin Hutchinson
The Great Recession Just Became Greater by Rick Davis
2Q2011 Advance GDP: 1.3% Economic Growth is Not Growth by Steven Hansen and Doug Short