Consumer Is Income Constrained

by: Steven Hansen


Consumer Income is not keeping pace with consumer expenditures.

The relative good disposable income data this week did little to improve this growing disparity.

If one looks at median incomes, this disparity is disastrous to an expanding economy.

Even after the good gains shown for personal consumer income in January 2014, this factor continues to constrain economic expansion.

There was a relatively good report issued by the BEA (U.S. Dept. of Commerce Bureau of Economic Analysis) for January 2014 personal income and expenditures. Basically it showed a fairly strong improvement in personal income (the same increase in expenditures).

Seasonally & Inflation Adjusted Percent Change From the Previous Month - Personal Disposable Income (red line) and Personal Consumption Expenditures (blue line)

Also, the year-over-year growth improved for income, but that was caused by an income spike in the data for December 2012 and an off-setting drop the following month which is easy to see in the blue line in the graph below. You can understand how the December 2013 data would indicate a contraction year-over-year, and how January 2014 would show growth year-over-year because of this spike.

It is believed this spike was caused by upper income receipts were moved forward from January 2013 to December 2012 out of uncertainty over the income tax prospects for 2013. Without further data that is a speculation based on circumstantial evidence.

But stepping back from the micro view, and indexing the data to January 2000, it is easy to see the constraint to the consumer spending more clearly. [Note: to demonstrate this index point was not cherry picked - click here to see a broader view of the graph below]

Indexed to Jan 2000, Growth of Real Disposable Income (blue line) to Real Expenditures (red line)

The gap continues to widen between personal income and personal expenditures. There is no apparent upward trend in income since September 2013, all while expenditures continued trending up. Keep in mind that this is aggregate growth, which we know is being heavily influenced by the 0.1%. A Sentier Research median household income graph shows that the relative income almost unchanged since January 2012 (red line on graph below).

One should note that median incomes did not spike in December 2012 - so we know that little of this money made it into the pockets of the lower income. It would be interesting to see median expenditures.

Because little is known about median spending, politicians and pundits can fill your mind with their opinion of what is going on. Some (many?) of them will not distinguish between proof, circumstantial evidence and speculation.

My usual weekly wrap is in my instablog.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.