Personal Income & Expenditures January 2011: One Anomaly

Analysts struggle going through the various releases to find hints at the direction of the economy.  Every now and then an anomaly is discovered, and we run around like hens squawking.  One month is not a trend, and anomalies are not trends.

In the January 2011 Personal Income and Outlays data – the anomaly is a decline in personal consumption expenditures (PCE) using chained (equal value) dollars.

Personal income increased $133.2 billion, or 1.0 percent, and disposable personal income (DPI) increased $78.3 billion, or 0.7 percent, in January, according to the Bureau of Economic Analysis.

Personal consumption expenditures (PCE) increased $23.7 billion, or 0.2 percent. In December, personal income increased $56.6 billion, or 0.4 percent, DPI increased $48.5 billion, or 0.4 percent, and PCE increased $56.5 billion, or 0.5 percent, based on revised estimates.

Real disposable income increased 0.4 percent in January, compared with an increase of 0.1 percent in December. Real PCE decreased 0.1 percent, in contrast to an increase of 0.3 percent.

One month is NOT A TREND.  The trend is growing expenditures.  The data is ok.  Nothing to write home about – but it shows an economy continuing to improve at a slow rate.  There are no warning signs in the data.

Econintersect analyst Doug Short (  focuses on growth of expenditures, or using the lingo Personal Consumption Expenditures (PCE).

The Headline PCE index has increased slightly in its annualized rate from 1.18% to 1.22% over the past month. The Core PCE index also increased slightly from 0.77% to 0.81%.

Doug is watching the down trend in growth rate of expenditures.  His use of percentage growth change YoY is an excellent way to analyze – as it removes much of the argument over change in purchasing power of the dollar when analyzing over long periods of time.

Everyone needs to understand that the money flowing here is not GDP.  Only a fraction of these expenditures are included in GDP.  GDP tracks productive spending – which is a random definition left over from the industrial revolution.  Analysts tend to concentrate on the expenditure side because GDP tracks expenditures.

Last month Econintersect documented that the growth in income was coming from the wealthy segment of the population (analysis here).  This month the rich segment grew even faster.

The expenditure side fell this month both per capita and total basis using chained 2005 dollars.  These are equal value dollars across time spans.

It is just one month of bad expenditure data.  The economy continues to show positive trend lines.

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