Thursday, September 30, 2004

The Department of Commerce tells us today that income growth in America is robust, but the consumer spirit seems to be flagging.
Personal income increased $35.1 billion, or 0.4 percent, and disposable personal income (DPI) increased $31.1 billion, or 0.4 percent, in August, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased less than $0.1 billion, or less than 0.1 percent. In July, personal income increased $19.9 billion, or 0.2 percent, DPI increased $15.0 billion, or 0.2 percent, and PCE increased $90.2 billion, or 1.1 percent, based on revised estimates.
Well, after that big splurge in July, what do you expect?

First, the good news (and why not?). Personal income and disposable personal income both rose in August at 0.4%, their fastest monthly pace since May. OK, that's about it for the good news (which, as Kash from AngryBear points out today, isn't all that good, anyway).

Even though income is rising, consumption is not. Personal consumption expenditures remained unchanged from July. Durable goods took another big hit, -1.6% on the month. Since May, annualized durable goods consumption is up a mere 0.2%, and even that meager pace is thanks solely to the reintroduction of the big car rebates in July which temporarily spiked purchases.

The overall consumption jump from June to July was so big that even an anemic September will make the consumption growth numbers for the quarter turn out respectable, but don't be fooled. Consumption has seen two truly bad months (June and August) out of the last three and three bad months (April, June and August) out of the last five. March wasn't anything to brag about, either.

Change from the preceding period in billions of chained (2000) dollars: Personal consumption expenditures

January . . . 13.9
February . . 29.2
March . . . . 4.8
April . . . . . -0.8
May . . . . . 47.2
June . . . . -42.7
July . . . . . 86.7
August . . . 0.2
It's not as if this income growth over consumption growth is causing personal saving to make a remarkable come-back, however. In August the personal savings rate was a pathetic 0.9%, although that was up from the contemptible 0.5% in July. Since 1935 the US personal savings rate has fallen below 1.0% only once: in 2001:IV when it rested at an amazing 0.5%. The third quarter might just be the second time.

Chew on that for a moment. Now consider that, according to the IMF, the United States sucked up almost 72% of the entire world's capital flows that year (the graph on page 3 truly speaks a thousand words). In second place was the United Kingdom -- at 4.5%! At the pace we're on, 72% won't be enough for long. We need more! We want it all!


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