Monday, August 30, 2004

Tanned, rested, and ready to blog!

The General is back from an almost-week-long vacation in which he soaked up a goodly amount of US history, saw some strange jelly-fish and a 68-year-old sea turtle, and slept five people in one hotel room. I'm working on a made for TV movie deal as we speak.

So much to talk about this morning! Rather than begin by covering ground I missed from last week, let's start with the just-released BEA numbers on personal income from July. The summary captures the bad news-bad news quality of the release pretty well.
Personal income increased $11.0 billion, or 0.1 percent, and disposable personal income (DPI) increased $7.9 billion, or 0.1 percent, in July, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $65.6 billion, or 0.8 percent.
Of course, the media is trying to spin this as a basically good report, what with consumption rising at its fastest clip of the year. Yet when consumption gains outpace income gains by 800%, one should at least pause for breath.

While consumption of nondurables and services did their share, the real cause of the big jump was a stunning 7.6% turnaround in the consumption of durable goods (-3.1% in June; +4.5% in July). This splurge was shoved along by some strong deflationary winds. The chain-type price index for personal consumption expenditures of durable goods changed -0.4% in July, its second monthly decrease in a row and the biggest price drop of the year, while the year-over-year price index has been falling every month this year.

All this spending over and above income has sent the savings rate plummeting again. In July, personal saving as a percentage of disposable personal income was a barely visible 0.6%. In real terms it was the lowest monthly total and the lowest savings rate since December 2002 and the third lowest under the Bush administration. One might assume that all the money we saved up in June (producing a whopping 1.3% savings rate) simply went out the door in July. That would be an incorrect assumption, however. The amount of real savings in June and July together is the lowest two-month total since March/April 2003, more the sign of desperate times than robust recovery.

One final bit of interesting news from the BEA report today: real personal current taxes have been creeping upward over the last year and in July were at their highest point since the big child tax rebate of summer 2003. Real contributions to government social insurance are at their highest point ever during the Bush administration. Both of these have taken significant bites out of personal income gains. Real wages and salaries had their biggest monthly gain of the entire year, +0.45%, but real disposable income ticked up just +0.1%.

Any attempt to balance the budget in this economic climate is sure to kill off domestic demand in a hurry. Of course, thanks to four years of Bush profligacy, there may be no alternative.

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