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Friday, August 28, 2009

July PCE and Saving Rate

by Calculated Risk on 8/28/2009 08:30:00 AM

From the BEA: Personal Income and Outlays, July 2009

Personal income increased $3.8 billion, or less than 0.1 percent, and disposable personal income (DPI) decreased $4.6 billion, or less than 0.1 percent, in July, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $25.0 billion, or 0.2 percent.
Real PCE -- PCE adjusted to remove price changes -- increased 0.2 percent in July, compared with an increase of 0.1 percent in June.
Personal saving -- DPI less personal outlays – was $458.5 billion in July, compared with $486.8 billion in June. Personal saving as a percentage of disposable personal income was 4.2 percent in July, compared with 4.5 percent in June.
Personal Saving RateClick on graph for large image.

This graph shows the saving rate starting in 1959 (using a three month centered average for smoothing) through the July Personal Income report. The saving rate was 4.2% in July.

Households are saving substantially more than during the last few years (when the saving rate was around 1.0%). The saving rate will probably continue to rise.

The following graph shows real Personal Consumption Expenditures (PCE) through July (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

PCE The quarterly change in PCE is based on the change from the average in one quarter, compared to the average of the preceding quarter.

The colored rectangles show the quarters, and the blue bars are the real monthly PCE.

The July numbers suggest PCE will grow at a 1.3% (annualized rate) in Q3.

Note that PCE declined sharply in Q3 and Q4 2008 - the cliff diving - and was been relatively flat in Q1 and Q2 2009. Auto sales should gave a boost to PCE in Q3, but in general PCE will probably remain weak over the 2nd half of 2009 and into 2010 as households continue to repair their balance sheets.