Written by Steven Hansen
I continue to be concerned about the relatively high spending rate of consumers. Spending relative to income is now in the range of the last peak which occurred in mid-2005.
Please share this article – Go to very top of page, right hand side, for social media buttons.
Seasonally Adjusted Spending’s Ratio to Income (a declining ratio means consumer is spending less of its Income)
What is the problem here? Is income growth is too low – or is spending too high? The graph below illustrates the relationship between income (DPI) and expenditures (PCE) – showing income and expenditures grow at nearly the same rate over time – but now consumption is far exceeding income and has been since the middle of 2016. The last time this happened was from 2005 through 2007.
Indexed to Jan 2000, Growth of Real Disposable Income (blue line) to Real Expenditures (red line)
And going hand-in-hand with high spending vs. income – the savings rate is near historic lows reached in 2005 and 2007.
The data from the Bureau of Economic Analysis shows that income is going up – but the Bureau of Labor Statistics data is saying the opposite.
Of course the disconnect in income between the Federal government agencies is that the BLS data only includes wage and salary income – and this is the income of the average Jane and Joe. Until Jane and Joe’s earnings improve, the fruits of the current economic expansion (as long as it lasts) will be enjoyed by the few.
Other Economic News this Week:
The Econintersect Economic Index for March 2018 marginally improved but remains in territory associated with modest economic growth. Note that this index has been in a general down trend since July 2017. We remain concerned about the HISTORICALLY HIGH elevated spending to income ratios which paints a picture of a consumer spending all of its income – with little room for additional spending.
