September U.S. Personal Income Data Shows Pullback

The data released Friday morning by the U.S. Department of Commerce’s Bureau of Economic Analysis on personal income somehow managed to show weakness in income and consumption as well as savings. I see this as proof that Americans are not saving and hence not deleveraging, but they are also so income constrained that their consumption should not be expected to increase markedly either. This points to a mild recovery.

The numbers from September show a significant decline in consumption from the cash-for-clunkers juiced August numbers.

Personal outlays — PCE, personal interest payments, and personal current transfer payments — decreased $48.8 billion in September, in contrast to an increase of $138.2 billion in August. PCE decreased $47.2 billion, in contrast to an increase of $139.8 billion.

If you take out August and cash-for-clunkers and look back at June and July, September’s consumption numbers are up a tick (annualized $10.53 trillion in personal outlays versus $10.44 trillion for July and $10.42 trillion for June).

So consumers are spending money. You can see this in the savings data as well.

Personal saving — DPI less personal outlays — was $355.6 billion in September, compared with $307.0 billion in August. Personal saving as a percentage of disposable personal income was 3.3 percent in September, compared with 2.8 percent in August.

3.3 percent is higher than 2.8 percent but it is a lot lower than 5.9 percent, which is where things were in May. I took this issue up at length in my post, “Americans are not increasing savings” earlier this month saying:

Savings rates averaged 9% through 1982. They were consistently above 7% through 1992. Since then, savings rates have collapsed. From Jan 1969 to November 1997 (comprising all monthly data since record-keeping began), the 10-year average savings rate was higher in every single month than the 5.9% savings rate achieved in May 2009.

So 2.8% is ridiculously low and inadequate to meet Americans’ needs in terms of reducing debt and Baby Boomers preparing for retirement. Absent asset-price appreciation as a source of savings, we are going to be in for some tough sledding in a few years. Clearly, record low interest rates are reducing the propensity to save.

On the other hand, incomes are still constrained. The BEA reports:

Personal income decreased $0.1 billion, or less than 0.1 percent, and disposable personal income (DPI) decreased $0.2 billion, or less than 0.1 percent, in September, according to the Bureau of Economic Analysis…

Real disposable income decreased 0.1 percent in September, compared with a decrease of 0.2 percent in August. Real PCE decreased 0.6 percent, in contrast to an increase of 1.0 percent.

This puts personal income on par with Aug 2007 levels, as income is being reduced by high unemployment.

My analysis says the data are pointing to a mild recovery on the back of consumer spending which is being spurred by low interest rates. As a result, savings are now going back down to dangerously low levels. This mix is a direct result of policy decisions made in Washington, which are designed to recreate the pre-crisis status quo ante. Thus far, they have been successful.

Comments

[Carlos Lam:]

I don't see how we get back to status quo ante with such high levels of household debt (it's at about 100% of GDP). Moreover, with personal income falling and unemployment rising, it seems like any "recovery" will stall unless the Fed and the feds continue to "juice" things (and it does look like Sen. Johnny Isakson's plan for more homeowner tax credits is going to pass).

Nov 01 06:55 AM

[Dave Wrixon:]

I am afraid I am going to have to put the telescope to the blind eye on this one. There is no recovery. Once the stimulus is stripped out the advances do no even begin to reflect the devaluation of the dollar which has a long way to go due to the reckless fiscal and monetary policies currently in place. Such devaluation will feed through into inflation and any illusory feel good factor will soon evaporate.

Nov 01 07:25 AM

[rob134:]

Actually, as it relates to known real unemployment, I see the drop in savings as a very dangerous signal that Americans are running out of cash. Jobs are not coming back, and those that do pay less. I do not see how consumer spending can beget a recovery. Once the cash is gone from savings there is no credit available to support additional spending.

Nov 01 08:20 AM

[LikeSoup:]

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Nov 01 01:39 PM