Personal Income and Savings: The Double Whammy

More details on yet another "consumer health" data point that had seen artificial "inflation" recently, only to revert back to its new, normal, trendline. As the BEA reports:

The June change in personal income reflects selected provisions of the American Recovery and Reinvestment Act of 2009, which boosted personal current transfer receipts in May much more than in June. Excluding these receipts, which are discussed more fully below, personal income decreased $7.8 billion, or 0.1 percent, in June, following a decrease of $2.5 billion, or less than 0.1 percent, in May.

As a result of this:

Personal income decreased $159.8 billion, or 1.3 percent, and disposable personal income (DPI) decreased $143.8 billion, or 1.3 percent, in June, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $41.4 billion, or 0.4 percent. In May, personal income increased $155.1 billion, or 1.3 percent, DPI increased $168.7 billion, or 1.6 percent, and PCE increased $9.0 billion, or 0.1 percent, based on revised estimates.

Additionally, wage deflation shows no signs of abating:

Private wage and salary disbursements decreased $28.6 billion in June, compared with a decrease of $11.3 billion in May. Goods-producing industries' payrolls decreased $11.1 billion, compared with a decrease of $10.9 billion; manufacturing payrolls decreased $6.7 billion, compared with a decrease of $8.4 billion. Services-producing industries' payrolls decreased $17.5 billion, compared with a decrease of $0.4 billion. Government wage and salary disbursements increased $2.8 billion, compared with an increase of $4.3 billion.

Most notably, the personal saving rate declined by over 1.6% in just a month. This is relevant as the consumer isn't levering up: savings exhaustion is likely coming at the expense of paper profits in Schwab and 401(k) accounts. Unless the Ponzi can be maintained in perpetuity, when the house of cards falls, the doulbe whammy from savings increase will have a dramatic adverse impact on the economy. Bottom line: another one-time plug to Q2 GDP.

Source: Bureau of Economic Analysis

Comments

[doubleguns:]

With unemployment eligability ending for many I would assume that many are now tapping into savings to make ends meet.

Aug 04 05:50 PM

[danman1:]

OK....I know a little economics but don't remember nearly enough to understand your last paragraph. It seems logical that since disposable personal income went down so too would both the absolute and % of disp personal income. However, are you inferring that the increase in the stock market is driving people to save less? And what is the double whammy? Less savings and less disposable personal income driving the economy back into negative growth? (this of course assumes Q3 growth is + as many expect).

Aug 04 08:08 PM

[Clive Corcoran:]

Re danman

The double whammy is the fact that personal income is going down and savings are going up

Aug 05 02:20 AM

[Clive Corcoran:]

Re danman

The double whammy is the fact that personal income is going down and for many dis-savings are going up

Aug 05 02:23 AM

[PainfullyAware:]

The "Combined" Disaster Metric To Watch Is Credit Card Default/Write Downs.

This Will Be The Last Bastion Of Solvency For Most.

This Metric Is Influenced By Unemployment, Savings And Discretionary Income.

The Latest "Stats" Are Not Encouraging.

Aug 05 03:32 AM

[Heaven, Hel...:]

Very salient article. Interestingly (or perhaps not), the 0.4% increase in PCE was driven soley by an increase in gasoline prices, which contributed 0.5% to the overall number, so holding such prices constant, real consumer spending actually declined -0.1% during the month.

Furthermore, the decrease in private salaries and wages was the ninth in tenth months, driven by factors such as the high unemployment rate of 9.5% along with the steady decline in the average production workweek to 33 hours, which is the lowest on record since recordkeeping began during the Lyndon Johnson Administration and is being driven by layoffs as well as substitution of part-time labor.

Economic headwinds indeed.

Aug 05 09:00 AM

[lynnybee:]

Well, those Panera jobs, Target jobs, WalMart jobs are looking pretty good right now ! Employees working @ Panera (& the like) are now the lucky ones, at least they have a job ! How can anyone buy "stuff " here in the U.S. if the majority of us earn under $10 / hour . It's a race to the bottom.

I'm sick of the whole sorry system & am deliberately not purchasing anything from big business.......... I'm saving all my worthless dollars !

Aug 05 09:46 AM

[mineralt:]

Globalism means, "wages in high income countries will drop, wages in low income countries who participate in the global economy will rise".

This is as planned IMHO

Aug 05 10:58 AM

[just.a.guy:]

The other piece of news that you won't see reported as a headline anywhere is that the "double whammy" combination of higher personal savings rates to payoff existing debts, coupled with lower personal incomes -- is also known as a reduction in the American standard of living.

Aug 06 02:01 AM

[VK9141:]

just.a.guy you're absolutely right it could be perceived as a reduction in the American standard of living.

Only to a point though. For me standard of living means things like comfort, culture, healthcare, education, intelligent debate, scientific and technological progress. So what disposable incomes are plunging? Do people really need mcmansions, multiple gas guzzlers, flat screens, designer clothes etc?

The US is facing a similar scenario to Japan in the '90s. Did their living standards fall? Go to Japan and see for yourself, they live quite well, sensibly, but judged on the criteria I listed well. (better than the US on all but comfort IMO, which is understandable given there is more inhabitable space in an average US state than all of Japan - for 130m people.)

Aug 06 07:07 AM

[WhoisJohnGalt:]

Good point just.a.guy. But the way I see it, Americans tried to prop up their standard of living with debt as America lost its industrial advantage. It's a downward spiral, and in the end, we were complacent about our true wealth for the past three decades.

Aug 06 09:46 AM

[GeminiAtlas:]

Globalization might be planned, but it also might be inevitable as new tech (internet etc) make the costs of connecting people around the world negligible. Also, as companies compete across the globe, they will seek out the cheapest labor (obviously). So as before, the American worker was more or less insulated from labor competition from abroad, they are now fully in competition with workers around the world. This will result in one of two possible outcomes, but most probably a combination of both. 1. As you say, wages will go down for the US because the workers can't compete cost-wise. 2. The US workers adapt themselves to do more value-added (innovative) work to compete. This would seem to suggest that education might be key as well as not losing that standard American value of risk-tolerance which is required for any innovative endeavor.


On Aug 05 10:58 AM mineralt wrote:

> Globalism means, "wages in high income countries will drop, wages
> in low income countries who participate in the global economy will
> rise".
>
> This is as planned IMHO

Aug 06 10:16 AM