Monday, February 28, 2011

Real Consumer Spending in January Was Above the Pre-Recession 2007 Level for 4th Straight Month

In today's BEA report on Personal Income, there was some pretty good news on real personal consumption expenditures: On an annual basis, real consumption spending increased by 2.8 percent in January, which was the largest annual improvement in four years, since January 2007 (see bottom chart above).  Measured in constant 2005 dollars, real consumer spending dipped slightly by -0.1 percent in January from the all-time record high in December, but consumer expenditures last month of $9.44 trillion was the second highest month on record.  January was the fourth consecutive month that real consumer spending was above the December 2007  level of $9.35 trillion.  

Update: Real disposable income also had an impressive 2.7% increase in January from its year ago level, the largest annual gain since March 2007 almost four years ago (except for the tax-rebate spikes in May and June of 2008).  The personal savings rate increased in January to 5.8% from 5.4% in December, the highest monthly savings rate since last summer.  Taken together, this is a "hat trick" of good economic news: real disposable income and real consumer spending are both close to record-high levels, and personal savings at 5.8% is almost a full percent above the 4.9% average over the last 25 years.    


At 2/28/2011 3:21 PM, Blogger VangelV said...

...January was the fourth consecutive month that real consumer spending was above the December 2007 level of $9.35 trillion.

Let me get this straight. We have consumers drowning in debt. We have a declining housing market as foreclosures and inventories grow and rates are showing signs of going up. We have the price of fuel and food going up for Americans. We have unemployment at a high rate and little sign of pick-up. Yet, we are supposed to believe that 'record high' spending by people who are broke is a good thing?

At 2/28/2011 3:51 PM, Blogger morganovich said...


did you take a look at the federal payroll tax deposits series that JW was rolling out?

it makes clear that even in nominal terms (much less real), we are not anything like back to the pre recession peak in terms of income.

i'd link to it, but it's subscriber only content.

At 2/28/2011 4:15 PM, Blogger Buddy R Pacifico said...

More good news from the BEA Report:

"Personal saving -- DPI less personal outlays -- was $677.1 billion in January, compared with
$620.9 billion in December. Personal saving as a percentage of disposable personal income was 5.8
percent in January, compared with 5.4 percent in December."

Savings and Consumption were both up in January -- that looks healthy.

At 2/28/2011 4:26 PM, Blogger morganovich said...


consumption was down in real terms even using CPI as a deflator. (consumption up .2, cpi up .3)

savings was up though, which may be good news (though perhaps still down in real terms depending on which deflator we use)

this is largely driven by the tax cuts which provide a big sequential boost from dec. the feb series will be closely watched to see how this trend shapes up once the one time sequential distortion from january is past.

At 2/28/2011 5:41 PM, Blogger Hydra said...

I know I did my bit. I dropped more than $25,000 above my usual spending level.

Mostly to replace decrepit old stuff that I had been nursing long beyond its normal useful life.

And I hedged by putting a few months supply in my gasoline storage tank.

At 2/28/2011 6:29 PM, Anonymous Anonymous said...

There were two important omissions. First, the chart does not take into account the 5% population increase from 2005 to the present. If personal spending (in inflation adjusted dollars) per person was unchanged, it would have increased by 1% each year. If we adjust for this and set Dec. 31, 2004 as the comparison value (100) for personal income per person, we get:

End of 2005 - 102
End of 2006 - 104
End of 2007 - 104
End of 2008 - 101
End of 2009 - 100
End of 2010 - 103

Second, one big reason for 2010's 3% rise in personal income per person was the temporary reduction in payroll tax withholdings. Without the reduced withholdings, personal income per person would be the same as it was six years ago. We made a faustian deal and traded a hope of increased consumer spending for a big increase in federal debt.

At 3/01/2011 4:00 PM, Blogger juandos said...

Interestingly Gallup doesn't think this trend will continue...


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