Thursday, May 06, 2010

Q1 PCE Growth came from Transfer Payments and Reductions in Personal Saving

by Bill McBride on 5/06/2010 01:02:00 PM

This is a theme I've probably already pounded into the ground ... but here is some more from the Atlanta Fed's Economic Highlights:

Income from Transfer Payments Click on graph for larger image in new window.

This graph is from the Altanta Fed and shows the month-to-month increase in government transfer payments (green) and the change in real personal income less transfer payments (flat red line).

From the Atlanta Fed:

The major contributor to income growth during the past several months has been transfer payments.
We could take this a step further ... the following table shows month-to-month increase in transfer payments and the month-to-month reduction in personal saving - and then compares to the month-to-month increase in Personal Consumption Expenditures (PCE). Note: all numbers are annual rates.

Monthly Increase, Billions (SAAR)Jan-10Feb-10Mar-10
Government Transfer Payments
   Old-age, survivors, disability, and health insurance benefits-1.53.15.1
   Government unemployment insurance benefits-6.6-2.211.8
   Other33.76.47.8
 
Reduction in Personal saving55.15428.2
 
Total Saving Reduction and Transfer Payments80.761.352.9
 
Increase in Personal outlays34.458.360.6

This shows that the entire increase in consumption in Q1 was due to transfer payments and reductions in the saving rate (now down to 2.7% in March). I suppose the saving rate could go to zero - although I expect it to increase, maybe incorrectly! - but at some point increases in consumption are going to have to come from jobs and income growth, not government transfer payments and reductions in the saving rate.