By Roger Thomas
The recent Personal Income and Personal Spending figures provided two broad conclusions about the state of the American Consumer, American income making and spending behavior.
First, Americans are still relatively frugal compared to the recent past, although, there's some reason to believe that the credit card-financed American consumer may be coming back (or at least less of a savings-first consumer). Second, taxes are eating into American spending, and by a lot. The tax-take of American income certainly has something to do with the weakness in spending. Taxes are at an all-time high.
Here's a look.
Personal Income and Personal Spending
The top figure is Personal Income. The bottom is Personal Spending. Outside of the peaks and valleys generally coinciding, it's difficult to see much besides the fact that Personal Income (top graph) and Personal Spending (bottom graph) are both relatively lackluster, floating in or close to the lowest quartile.
How can one say the American consumer is starting to believe with such lackluster spending and income growth figures?
Well, here's the difference between the year-over-year growth in Personal Income and year-over-year growth in Personal Spending. If one looks to the very far right, that's the most recent figure. And, it shows a sharp decline in the difference between income and spending, meaning that Americans are now starting to spend a chunk more of what they make.
The difference is now starting to approach its historical mean. This suggests that the American consumer is starting to feel more confident in the state of the economy, at least enough to spend more of what they're making.
Taxes and Disposable Income
What's behind the lackluster spending growth? A chunk is due to taxes.
Here's a look at taxes and disposable personal income.
The top pane is Real Disposable Personal Income (orange) and Real Personal Income (gray).
The two move closely together, and are widening through time. It is this widening that is the tax bill, which is also shown in the bottom pane (blue line). The tax bill is at an all-time high and has been floating in all-time high territory for going on three years.
With the broad Personal Income, Personal Spending, and Taxes picture established, here's some politics.
The following three graphics are Personal Income growth by presidency, Personal Spending growth by presidency, and Disposable Personal Income growth by presidency.
Before looking, which president would you guess wins? Which loses?
Interestingly, Reagan wins all three. Obama loses all three.
Perhaps surprisingly, even if Obama manages to hold off a recession, he probably still won't catch Bush II, who had to deal with two recessions during his tenure.
American Consumer - Conclusion
Overall, the American consumer may now be starting to believe in a sustainable economy. That is, if strongly narrowed difference between Personal Income and Personal Spending continues to hold.
On the political front, the winner, as measured by growth in Personal Income and Personal Spending, is Reagan.
The loser - Obama.