Personal income and spending in October was sluggish, and that's the charitable interpretation. But any talk of weak growth these days is quickly followed by the word "hurricane," along with the excuse that the devastating storm that struck the Northeast U.S. in late-October took a bite out of what would have been a more favorable profile for the month. There's a lot of debate about how much to blame on the weather, if at all. The Bureau of Economic Analysis notes in its income and spending report today that the storm was a factor in some degree that reduced wages and salaries. The implication, of course, is that what nature has taken away the economy will replace down the line. As such, the weather factor is an issue for the future, for good or ill. Meantime, on to the numbers as reported this morning.
Disposable personal income (DPI) was flat last month, posting the weakest reading since November 2011's decline. Personal consumption expenditures (PCE) fared even worse, retreating 0.2% in October—the first monthly decrease since June and the steepest drop since May. In short, today's numbers aren't encouraging by any stretch of the imagination. Given the general climate, between the fiscal cliff risk in Washington and recession in Europe, no one will be comforted by today's data dump. But the numbers aren't overwhelmingly awful either when considered in a longer-term context.
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The next chart shows the year-over-year percentage changes for DPI and PCE, which reminds that growth is modest but relatively stable, at least for now. Income and spending are rising at around 3% each in nominal terms. That's not impressive, but that's only slightly below the previous month's annual rate and so we don't yet have a clear and unambiguous signal that these two metrics are collapsing.
The year-over-year trends for income and spending continue to support the slow-growth narrative that's prevailed for the economy overall this year. The support is wearing thin, particularly if the one-time hurricane excuse doesn't pan out. If the annual pace slips further in the months ahead, it'll be time to reassess. Certainly the trend doesn't look encouraging for thinking that growth will accelerate. The question is whether the annual rate will decelerate in any large degree?
One reason to remain cautious on expecting a favorable outcome is the ongoing deceleration in private-sector wages, as shown in the next chart below. Wages represent about half of personal income and so this slice of the pie can't be ignored. As of last month, private-sector wages increased 2.8% vs. a year ago. Not great, but we haven't yet crossed a red line yet either. Would the numbers have looked better without the hurricane? Probably, but it'll take another month or two to decide what to believe, or not.
“When all is said and done, consumers are not performing robustly, but they have a few things in their favor. Gas prices have fallen and the housing market is showing some traction,” says IHS Global Insight economist Chris Christopher.
Some folks will jump on today's income and spending numbers as proof positive that the economy is crumbling. They may be right, but it's still hard to make that claim based on the data du jour. A broader review of the indicators also suggests that slow growth is still with us. Can we count on more of the same with the incoming numbers in the days and weeks ahead? Let's just say that the potential for trouble is higher than it has been in several months. But it's still premature to put a fork in this turkey and declare that the expansion is cooked.
It's never wise to wait one day longer than necessary to declare that a new recession is fate. But it's equally risky to proclaim that we've slipped over to the dark side before the numbers present a convincing case on multiple fronts. To some ears, this sounds like prevarication. On the contrary, it's simply recognizing reality. It's tempting to fill in the missing pieces with speculation about what's coming, or not, and that's fine, up to a point and assuming it's done intelligently. But the future is still full of tricks, and not all of them lead down the rabbit hole.