by Calculated Risk on 3/27/2009 08:26:00 AM

The BEA released the Personal Income and Outlays report for February this morning. The report shows that PCE will probably make a positive contribution to GDP in Q1 2009.

Each quarter I've been estimating PCE growth based on the Two Month method. This method is based on the first two months of each quarter and has provided a very close estimate for the actual quarterly PCE growth.

Some background: The BEA releases Personal Consumption Expenditures monthly and quarterly, as part of the GDP report (also released separately quarterly).

You can use the monthly series to exactly calculate the quarterly change in real PCE. The quarterly change is not calculated as the change from the last month of one quarter to the last month of the next. Instead, you have to average all three months of a quarter, and then take the change from the average of the three months of the preceding quarter.

So, for Q1 2009, you would average real PCE for January, February, and March, then divide by the average for October, November and December. Of course you need to take this to the fourth power (for the annual rate) and subtract one.

The March data isn't released until after the advance Q1 GDP report. But we can use the change from October to January, and the change from November to February (the Two Month Estimate) to approximate PCE growth for Q1.

The two month method suggests real PCE growth in Q1 of 0.8% (annualized). Not much, but a significant improvement from the previous two quarters (declines of -3.8% and -4.3% in PCE).

The following graph shows this calculation:

Click on graph for larger image in new window.

This graph shows real PCE for the last 12 months. The Y-axis doesn't start at zero to better show the change.

The dashed red line shows the comparison between January and October. The dashed green line shows the comparison between February and November.

Since PCE was weak in December, the March to December comparison will probably be positive too.

This graph also show the declines in PCE in Q3 and Q4.

For Q3, compare July through September with April through June. Notice the sharp decline in PCE. The same was true in Q4.

This suggests that PCE will make a positive contribution to GDP in Q1.

Also interesting:

Personal saving -- DPI less personal outlays -- was $450.7 billion in February, compared with $478.1 billion in January. Personal saving as a percentage of disposable personal income was 4.2 percent in February, compared with 4.4 percent in January.

This is substantially above the near zero percent saved of recent years.

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.

It is not much, but this is definitely a positive report.

by Calculated Risk on 3/27/2009 12:19:00 AM

Another open thread.

The U.S. futures are off a little right now ahead of the Personal Income and Outlays report Friday AM. This report should give us a strong clue on PCE for Q1.

Bloomberg Futures.

CBOT mini-sized Dow

CME Globex Flash Quotes

Futures from barchart.com

And the Asian markets. The Asian markets are up a little tonight (in general).

And a graph of the Asian markets.

Best to all.

by Calculated Risk on 3/26/2009 08:25:00 PM

ht Nemo. Caution: Cartoon violence.

by Calculated Risk on 3/26/2009 06:24:00 PM

We do requests (sometimes). This is an update to a graph I posted last November.

This is a look at the real year-over-year (YoY) change in house prices vs. personal consumption expenditures (PCE) through Q4 2008:

Click on image for larger graph in new window.

This graph shows real Case-Shiller quarterly national prices adjusted using CPI less Shelter vs. real PCE. Note that YoY real Case-Shiller prices fell at a slightly slower pace in Q4 - only 17% - compared to 21% YoY in Q3, mostly because CPI less shelter declined in Q4.

For this limited data set (house price data is only available since 1987) the YoY changes move somewhat together, although house prices started declining before PCE during the current economic downturn. This difference in timing could be because of homeowners withdrawing equity from their homes (the Home ATM) even after prices first started falling. However the recent MEW data shows that the Home ATM is closed and consumption has declined sharply.

This doesn't tell us how much further real PCE will decline on a YoY basis - my initial guess was 4%, but it might be less.

by Calculated Risk on 3/26/2009 04:26:00 PM

The Federal Reserve released the Factors Affecting Reserve Balances today. Total assets increased to $2.1 trillion.

[This] include information related to the Term Asset-Backed Securities Loan Facility (TALF). Credit was extended under the TALF for the first time on March 25, 2009.

The TALF is just getting started with $4.7 billion yesterday.


Click on graph for larger image in new window.

After spiking last year to $2.31 trillion the week of Dec 18th, the Federal Reserve assets have declined somewhat.

Now the Federal Reserve is starting to expand their balance sheet again.

Note: the graph shows Total Factors Supplying Federal Reserve Funds and is an available series that is close to assets.

Three trillion here we come! Or maybe four?