by Calculated Risk on 3/02/2009 11:36:00 AM

Amid all the gloom this morning - the AIG bailout and massive losses, the weak manufacturing ISM index, the cliff diving construction spending numbers - there was this Personal Income and Outlays report for January from the BEA.

This report showed that personal income increased in January, however the increase was mostly because of special factors related to government and military wage increases. But this report also showed that PCE was up slightly from October to January (the period that matters for GDP); about 0.7% in real terms annualized. Not much - and this is just one data point and could be revised, and this might be impacted by gift cards (this data uses the January retail numbers) - but perhaps PCE won't fall completely off a cliff in Q1. I still expect PCE to decline sharply in Q1, but maybe not as rapidly as in Q3 2008 (-3.8% SAAR) and Q4 2008 (-4.3% SAAR)
(SAAR: seasonally adjusted annual rate)

Also interesting:

Personal saving -- DPI less personal outlays -- was $545.5 billion in January, compared with $416.8 billion in December. Personal saving as a percentage of disposable personal income was 5.0 percent in January, compared with 3.9 percent in December.

This increase in the percent saved is an important part of the rebalancing process and helps repair household balance sheets.

Click on graph for larger image in new window.

This graph shows the saving rate starting in 1959 (using a three month centered average for smoothing).

Although this data may be revised significantly, this does suggest households are saving substantially more than during the last few years (when they saving rate was close to zero). This is a necessary but painful step ... and a rising saving rate will repair balance sheets, but also keep downward pressure on personal consumption.