Earlier today I posted my monthly update of the year-over-year change in the Personal Consumption Expenditures (PCE) price index since 2000. My focus was on PCE data as a measure of inflation.
Now let’s look at December’s real disposable income per capita to understand what the latest PCE numbers are telling us about health of the U.S. economy. In other words, we want to know the dollars available to spend adjusted for both inflation and population growth. The first chart below is a snapshot of the past eleven years. We see that real personal consumption peaked in May 2008. The latest data, through December, is 3.2% below the 2008 peak.
The second snapshot shows us the year-over-year rate of change over the same timeframe.
These charts offer a more realistic sense of how the U.S. consumer is faring. They tell a rather different story from the spin I’ve seen elsewhere today:
- Bloomberg: December Consumer Spending Beats Forecast
- CNBC: Consumer Spending Rises More Than Expected
- Reuters: Consumer spending rises 0.7 per cent in December
How does the current data compare with earlier economic recoveries? Here is a look at real disposable income per capita for the past 61 years.
The current duration of disposable income contraction is unprecedented in PCE data. To some extent this grim reality is a result of the 2008 stimulus package, which was largely responsible for the spike in May 2008, 3.2% above the current level.Let’s go one step further and let Excel draw an exponential regression through the entire data series. The consumer closed out 2010 with a level of real disposable income 8.5% below the long-term trend.