Ugly Data Continues: No Life In the Consumer Sector

The way personal income and personal consumption expenditures data is headlined, you would not be wrong in thinking the USA consumers are again dining in May 2011.

Personal income increased $36.2 billion, or 0.3 percent, and disposable personal income (DPI) increased $29.2 billion, or 0.2 percent, in May, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $4.6 billion, or less than 0.1 percent. In April, personal income increased $37.7 billion, or 0.3 percent, DPI increased $27.9 billion, or 0.2 percent, and PCE increased $28.8 billion, or 0.3 percent, based on revised estimates.

Real disposable income increased 0.1 percent in May, in contrast to a decrease of 0.1 percent in April. Real PCE decreased 0.1 percent, the same decrease as in April.

The headlines have 7 increases and only one decrease. The second paragraph of the headlines is real income and expenditures – in other words inflation adjusted money. Here the headlines are tied with one increase and one decrease. For those who use GDP as a measure of economic activity – it is EXPENDITURES and not income which are used to calculate GDP.

And the headline GDP is inflation adjusted.

The red line in the above graph is inflation adjusted expenditures – the USA economy is clearly in a downtrend – and the data has been contracting for the last two months. Again, GDP is calculated on expenditures, the consumer is over 60% of GDP – and the consumer spending is contracting.

Income interestingly had positive growth in May, after several months of real contraction.

The PCE is telling you unless June turns into a great month – that 2Q2011 GDP will be worse than 1.9%.

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