Monthly Consumption Growth: Highest in Seven Years

I previously mentioned that the December 24 BEA report showed a strong increase in real personal income. Now I notice some interesting patterns with real per capita consumption expenditures from the same report.

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The "disaster" here seems to be isolated to durable goods. Of course, we are nauseatingly aware of the automaker woes. But real services (over 60 percent of total consumption expenditure) are actually higher.

The news from Wednesday (ignored, of course, by the press) was that:

• Per capita consumption expenditures (all types, deflated by CPI-all) were up in November for the first time since April. This is the largest monthly increase in more than seven years.
• Per capita durable consumption good expenditures (deflated by CPI-durables) were flat in November.
• Per capita services expenditures (deflated by CPI-services) were up in November, for the 20th month in a row.
• Per capita retail sales (deflated by CPI-all) were pretty flat in November, after five straight months of losses.

Do we dare entertain the idea that the trough of this recession was in October?

[Technical note: I used the CPI for all items to deflate retail sales and PCE - all. The CPIs for durables, nondurables, and services, respectively were used to deflate the components of PCE. I think this is the right approach, but in case you want to see the consumption series deflated with a common deflator (CPI-all), see below. I infer from the monthly inflation rates (Oct-Nov) that fuel costs appear in nondurables: -1.7% (all), +0.0% (durables), -5.1% (nondurables), -0.6% (services) . More on deflators below.]

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On Friday, it was reported that:

• Nominal December retail sales are down 5.5-8 percent compared to the same time frame last year. This is a different data source than I used above (so we have to be cautious with comparisons), but note that the retails sales data I used have a Nov-Nov change in nominal retail sales of -5.9 percent.

• Amazon.com (AMZN) had the best holiday season ever.

So Friday's data is consistent with the expectation that December's consumption will be as strong as November's.

Added on Dec. 27: Thanks Tegwar for pointing out that the BEA has monthly PCE deflators. The graph below uses them. The news items based on the various PCE deflators are:

• Per capita consumption expenditures (all types, deflated by the PCE-all deflator) were up in November for the first time since May. This is the largest monthly increase in two years.

• Per capita durable consumption good expenditures (deflated by PCE-durables deflator) increased in November.

• Per capita expenditures (deflated by category-specific PCE-deflator) were up in November for all three consumption categories.

• Per capita retail sales (deflated by PCE-all deflator) were pretty flat in November, after five straight months of significant losses.

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Comments

[Moon Kil Woong:]

Thanks for the charts, however, I don't think I'd entertain the thought that things will get better and we are at the trough yet. I can hope but hope isn't a good strategy when the next President is warning even with a $850 billion stimulus package expect 10% unemployment.

Sounds bad, employment is the lifeblood of the economy, money flow is just the oxygen it carries around. The Fed and Treasury can increase the oxygen but without employment none of it will help. We are looking at a very sick patient.

2008 Dec 29 06:21 AM

[Alphameister:]

If a tiger can't change its stripes, perhaps American consumers also won't drastically change their propensity to consume and the de-leveraging will be less severe than most analysts currently expect.

2008 Dec 29 08:27 AM

[sickofthehype:]

People, especially here in the US, forget REALLY quickly and will be back to their consumer spending habits as soon as the credit/funds are available.

Look at today's article on SUV/truck sales for December - expected to blow away car sales. Now granted, sales are slow, however, it just shows how quickly we forget things! Just a few months ago people were doing whatever they could to get into a fuel efficient car! Ridiculous.

Yes, you can bet these same people will spend if it's available again.

2008 Dec 29 09:53 AM

[Rob Viglione:]

This is good news in the near term, but could bode poorly for long run prosperity. Americans have severe balance sheet issues. Policies to encourage them to spend will alleviate economic problems now, but pose serious risks in the future as we become further indebted with less equity to support.

2008 Dec 29 09:59 AM

[axelrod608:]

Don't we ALL consume more ( nondurables) around the holidays ? Would it not be more accurate to compare year-on-year Nov/Dec consumption rather than compare it to May ? My initial reaction is that you've just "compared" apples to oranges.

In May with good weather, you can't find another shopper in a store. In Nov/Dec, you can't find a shopping cart. "Consumer growth highest in 7 years" ? Not where I live.

2008 Dec 29 10:38 AM

[Jason Rines...:]

1) This is a "W" shape recession/depression event. The first leg down will be over by the end of Q1 2009.
2) Fiscal stimulus will help on job creation, but this will be kicking in on the second leg down. We'll see some positive momentum from Obama taking office January 20th, probably similar to the 100 days of up market when Herbert Hoover 1st took office in 1933.
3) Investors do have a lot of cash sitting on the sidelines. $4.3 T. However, until Great Depression regulation has been restored that facilitated this new depressionary event, that money will stay on the sidelines. Too many of the old guard management that did not do it's job at corporations and regulatory bodies are still present and as such will will have to be replaced. That takes time.
4) I stick by my 2007&2008 general statement that America is moving away from Efficient Market back to Save and Invest. As Americans live with a continued flat wage but declining prices, they have just begun paying down personal debt. This last year has been very painful for the consumer and investor alike. It was a painful demonstration of Chronie Capatalism. Neither group will simply just "forget". The words 'value proposition' will mean something now in the future if you intend to have a profitable company.

2008 Dec 29 11:16 AM

[billddrummer:]

I agree with iThinkBig. Value proposition will become the watchword for companies attempting to remain profitable during the coming year, and those companies that respond intelligently and with focus will emerge stronger, more competitive, and more profitable when the economy recovers than those who don't.

2008 Dec 29 02:40 PM

[upndown1313:]

All I know I that i am now saving about $200/month in gas which I am now spending elsewhere. Multiply this by 100 million people, an you have a very huge stimulus now occurring. From PCE perspective, i believe we have hit bottom.

2008 Dec 29 03:57 PM

[wise:]

excellent analysis, kudos. We do not know the trend, but this good news is buried by the media who are feeding the appetite for pessism

2008 Dec 29 07:59 PM

[stevendedalus:]

Charts and graphs are notorious for bending the rules. The fact still remains the economy is hurting and magical analses will not palliate retailers who are closing their doors.

2008 Dec 30 02:25 PM