Tuesday, August 03, 2010

Personal Income Flat, Private Wages and Salaries Decline in June; Is Consumer Spending 70% of GDP? Checkmark Recovery Revisited

Inquiring minds are digging into the BEA report Personal Income and Outlays, June 2010 http://www.bea.gov/newsreleases/nationa ... elease.htm

Personal Income

Personal income increased $3.0 billion, or less than 0.1 percent, and disposable personal income (DPI) increased $5.1 billion, or less than 0.1 percent, in June, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $2.9 billion, or less than 0.1 percent.

In May, personal income increased $40.5 billion, or 0.3 percent, DPI increased $36.9 billion, or 0.3 percent, and PCE increased $8.6 billion, or 0.1 percent, based on revised estimates.

Wages and salaries

Private wage and salary disbursements decreased $5.2 billion in June, in contrast to an increase of $19.2 billion in May.

Goods-producing industries' payrolls decreased $8.9 billion, in contrast to an increase of $10.4 billion

Manufacturing payrolls decreased $6.0 billion, in contrast to an increase of $7.8 billion.

Services-producing industries' payrolls increased $3.7 billion, compared with an increase of $8.8 billion. Government wage and salary disbursements decreased $0.6 billion, in contrast to an increase of $7.0 billion.

The decline in the number of temporary workers for Census 2010 subtracted $3.4 billion at an annual rate from federal civilian payrolls in June; the hiring of additional temporary workers had added $5.7 billion at an annual rate in May.

Personal Outlays

Personal outlays -- PCE, personal interest payments, and personal current transfer payments -- decreased $7.0 billion in June, in contrast to an increase of $4.6 billion in May. PCE decreased $2.9 billion, in contrast to an increase of $8.6 billion.

Personal Saving

Personal saving -- DPI less personal outlays -- was $725.9 billion in June, compared with $713.9 billion in May. Personal saving as a percentage of disposable personal income was 6.4 percent in June, compared with 6.3 percent in May.

For the most part, June took away some or most of the gains in May, depending on category.

A few inquiring minds have asked me about Personal consumption expenditures (PCE). It is back to all time highs. Let's take a look.

PCE 1960 - Present



For a look at a larger Graph: http://4.bp.blogspot.com/_nSTO-vZpSgc/T ... 10-06A.png

PCE 2000 - Present



For a look at a larger Graph: http://2.bp.blogspot.com/_nSTO-vZpSgc/T ... 10-06B.png

Has Consumer Spending Recovered?

One person cited the above chart as proof a "checkmark" recovery was in progress.

Others have asked about the chart, presuming that it shows consumer spending and retail sales have recovered.

The chart sure makes it look that way but that is not what is happening at all.

Indeed, state sales tax collections show dramatic declines in retail sales as noted in Did Retail Sales Rise or Did Tax Rates Go Up?. http://globaleconomicanalysis.blogspot. ... rates.html

A few days later the Rockefeller Institute Confirmed Rising Retail Sales a Mirage. http://globaleconomicanalysis.blogspot. ... ising.html

So if retail sales have been declining from 2008 through present (they are flat to slightly turning up now), then how do we account for the PCE chart?

Understanding PCE and Consumer Spending

To understand the discrepancy, we have to know what goes into PCE in comparison vs. retail sales. Here is an interesting article written in August of 2009 that addresses the issue.

Is Consumer Spending is 70% of GDP?

Economist Michael Mandel's article Consumer Spending is *Not* 70% of GDP http://www.businessweek.com/the_thread/ ... -impo.html not only addresses the above question, he also explains the apparent discrepancy between retail sales and consumer spending. Let's take a look.

I opened up this morning’s NYT and see the big headline “Retailers See Slowing Sales in a Key Season.â€