Thursday, January 31, 2013

Personal Income increased 2.6% in December, Spending increased 0.2%

by Bill McBride on 1/31/2013 09:08:00 AM

Note: Personal income jumped in December as many high income earners accelerated income into 2012 to avoid higher 2013 taxes. This pushed up personal income sharply, and also increased the savings rate. This will be reversed in the January report, and there will be a large decline in personal income on a month-to-month basis.

The BEA released the Personal Income and Outlays report for December:

Personal income increased $352.4 billion, or 2.6 percent ... in December, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $22.6 billion, or 0.2 percent.
...
Real PCE -- PCE adjusted to remove price changes -- increased 0.2 percent in December, compared with an increase of 0.6 percent in November. ... The price index for PCE decreased less than 0.1 percent in December, compared with a decrease of 0.2 percent in November. The PCE price index, excluding food and energy, increased less than 0.1 percent in December, the same increase as in November.
...
Personal saving -- DPI less personal outlays -- was $436.7 billion in November, compared with $404.6 billion in October. The personal saving rate -- personal saving as a percentage of disposable personal income -- was $805.2 billion in December, compared with $495.0 billion in November. The personal saving rate -- personal saving as a percentage of disposable personal income -- was 6.5 percent in December, compared with 4.1 percent in November.
The following graph shows real Personal Consumption Expenditures (PCE) through December (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

Personal Consumption Expenditures Click on graph for larger image.

This graph shows real PCE by month for the last few years. The dashed red lines are the quarterly levels for real PCE.   PCE for both October and November was revised up slightly.

PCE will probably be a little weak in Q1 because of the payroll tax increase, however, I still expect PCE to increase between 1.5% to 2.0% annualized in Q1.

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