Personal Consumption Expenditure (PCE) – the spending of consumers – rose an inflation and seasonally adjusted 0.5% month-over-month in September 2011. This was the largest monthly increase since December 2009.
Inflation and seasonally adjusted disposable income fell 0.1% month-over-month. For those worried about the gap between income and expenditure, since January 2007 income has risen 3.3% while expenditures have risen only 3.0%.
Keeping it real, per capita inflation adjusted income is down 0.8% since Jan 2007.
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. Likewise, personal income is the money consumers earn to spend.
PCE is a fairly noisy index and subject at times to significant backward revision. Econintersect views this data using a three month moving average which has a relatively steep positive trend in play.
The headline table follows, and again I follow the inflation adjusted (chained) numbers. Disposable income is the income left after the tax man.
From the press release on PCE movements:
Real PCE — PCE adjusted to remove price changes — increased 0.5 percent in September, in contrast to a decrease of less than 0.1 percent in August. Purchases of durable goods increased 2.6 percent, in contrast to a decrease of 1.0 percent. Purchases of motor vehicles and parts accounted for more than half of the increase in September, and more than accounted for the decrease in August. Purchases of nondurable goods increased 0.5 percent in September, in contrast to a decrease of 0.1 percent in August. Purchases of services increased 0.1 percent, the same increase as in August.
The major reason why expenditures are rising while income is falling is that consumers are saving less.
This personal income and personal consumption expenditure data by itself is not a good tool to warn of an upcoming recession. Econintersect has shown that PCE is a distraction for recession watchers, with a 30% accuracy of indicating a recession start, and a 70% incidence of indicating a non-recessionary event.
Readers are warned that this article is based on seasonally adjusted data. Monthly non-adjusted data is not available. Econintersect has concerns that seasonally adjusted data is not 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. Again, this is seasonally adjusted data – and there should NOT be continuing occurrence of year-over-year single month blips every few months (red circles on above graph).