Economic Indicators: Consumption, Personal Income Up; Productivity Stabilizing

The Bureau of Economic Analysis reported that real disposable personal income was $2478 per person in May 2009. The only month in U.S. history higher than that was May 2008 ($2499). Based on the recent trends, I expect that June 2009 (which is almost over) will have the highest real disposable personal income ever.

Real consumption expenditure rose in May, after two months of decline. As of May, real consumption expenditure was higher than it was in any of the months Oct-Dec 2008, but lower than it was in the first part of 2008: Consumption is not back to what it was, but not as low as we thought it might get.

My forecast is that 2009 Q2's real GDP will be 1 percent lower than 2009 Q1's. Annualizing that forecast, it's -4.2 percent. We already know about the job losses through May, and my guess is that (as in previous quarters) these losses continue to be a movement along a stable labor demand curve.

Comments

[Dave Wrixon:]

So now you have wage inflation. Great!

Jun 28 07:07 AM

[CLH:]

Casey--You shouldnt tell people. Few investors invested as the market just went up nearly 50%--- which should have told investors that things are getting better.

Jun 28 12:41 PM

[Ali Mogharabi:]

Disposable income increased, but the next question is why? According to the report summary and actually in the numbers, overall personal income was up more than expected mainly to govt payouts. With that, you end up with a higher disposable income.

Take a look at wages and salaries. That figure went down last month, and the decline would've been more significant if, again, it was not partially offset by increase in govt jobs wages and salaries.

So the notion that personal income indicates things are getting better is wrong. Combine those things with the fact that savings rate is up to 6.9%, it doesn't appear that we are on our way to a good recovery. Actually, many ignore this question - what savings rate would we have seen in May if we didn't have all of those govt payouts? I think it could've been as high as 8%. Unfortunately, this economy remains personal consumption driven, but it will take a while to get the consumer out there to again spend more money than he/she makes.

Consumers are still deleveraging, not just on the credit card side, but of course also on the mortgage side. Unemployment is extending this deleveraging process out further and further.

Lastly, regarding the stable labor demand curve, I hope you are right. But there are a couple of reasons why I think the unemployment mkt bottom is still a few months out -

+ not all of the auto-industry 'victims' have yet filed claims
+ exhaustion rate of continiung claims is at record highs and will likely continue to go up
+ people seeking extended Federal benefits continues to go up
+ seasonally speaking, we usually see a drop in initial claims in May and June, as families decide to go on vacations, etc and plan on filing after they come back.

I guess simply put ... although I hope your optimism will be right, I don't think most of those green shoots will continue to grow. Govt's (both Republicans and Democrats) handouts have basically created misleading green artificial turf.

Jun 28 01:07 PM

[CautiousInv...:]

Wages and salaries were down in May but transfer payments were up sufficiently to offset this decline and produce a net increase in personal income for the month.

It's very odd when you think about the chain of events which lead to this so-called increase in personal income. Legislation is passed authorizing additions to transfer payments; national borrowing limits are increased; Treasury auctions additional bills and notes; China and others with excess foreign exchange and those with savings "invest" in Treasuries; Treasury increases existing payments or initiates a new one; BEA and the media proudly trumpet this as an increase in income.

Amazing and we did not produce anything.

Jun 28 02:23 PM

[Old Trader:]

Unfortunately, this article appears to fall into the category of taking "headline numbers" and making prognostications based on those numbers without doing any sort of analysis into what might lay under those numbers.

As Ali pointed out, things have been skewed by the effects of the stimulus plan, which was a "one time" sort of thing, unless the government plans additional stimulus, which is, of course, entirely possible. In either case, its not the underpinning for an economic rebound.

Jun 28 02:30 PM