Did it triple because consumers lowered the price of durable goods?
Written by Wolf Richter of Wolf Street.
It’s no surprise that the drunken sailors, as we affectionately and playfully call them all year round, continue to splurge on goods and services despite endless expectations of what walls they’ll hit. . Record numbers are working, getting big raises and making record amounts of money, retirees are receiving an 8.7% Social Security cost of living adjustment in 2023, and yield investors are receiving an 8.7% are receiving benefits. More than 5% of the trillions of dollars in money market funds, CDs, high-yield savings accounts, government bills, and single-parent homeowners are getting sizable rent increases this year, all of which add up. There is.
Disposable income per capita adjusted for inflationThe Bureau of Economic Analysis said today that November rose 0.4% from October, the largest increase since March 2023 and the first increase since March 2021, which was the peak stimulus package.
After adjusting for inflation, per capita disposable income increased by 4.3% from the previous year. This is a big relief, as it was well below the inflation rate in 2022. In other words, per capita disposable income continues to outpace inflation by 3 to 5 percentage points throughout the year. The funds to make all this expenditure are as follows:
Disposable income is income from all sources minus income taxes and social insurance contributions. This includes income from wages and salaries, government transfers (primarily Social Security benefits), interest, dividends, rent, farm income, personal business income, etc., but does not include capital gains. yeah. This is what consumers spend on goods and services and have left over to save. And they spent a lot of money and saved some.
personal savings rate It rose to 4.1% (from 3.8% in October). This was slightly lower than in the post-crisis years, but higher than in the pre-crisis years. This is the portion of disposable income that consumers do not spend but instead save in a variety of ways, such as contributing to retirement accounts, paying off credit cards, or keeping a little extra in a checking account. is.
personal income without it Transfer payments adjusted for inflation; November’s sales rose 0.6% from October, and rose 2.9% compared to the same month last year.
This includes income from wages, interest, dividends, rental real estate, farm income, small business income, etc., but excludes things like Social Security benefits, unemployment insurance, and veterans benefits.
This income growth is a function of record employment, rising wages, and increased interest and rental income. This means that our drunken sailors outpaced inflation by a considerable margin in November (not including government transfers). And that’s the problem. The increase in spending comes from.
2022 will see a period in which inflation exceeded income growth and inflation-adjusted incomes declined.
And they went to a party.
After adjusting for inflation, personal consumption increased by 0.2% November grew from October to November as consumer spending significantly outpaced inflation.
Spending increased by 2.7% year-on-year after adjusting for inflation, the largest increase since March 2022.
The three-month moving average, which eliminates monthly squiggles and better shows trends, rose 0.3% month-over-month and 2.3% year-over-year, the biggest increase since April 2022. The graph shows a 3-month moving average. average. Note that late last year and this spring there was a slowdown in the flat parts.
Inflation-adjusted service spendingup 0.2% from the previous month and 2.2% from the same month last year.
Of course, it is in the service industry that inflation is now taking hold. Also announced today, the service PCE inflation rate rose 4.1% year-on-year due to rent inflation, accelerating to an annual rate of 6.2%, while consumer spending was 2.2 percentage points higher than the service inflation rate of 4.3%.
Spending on services accounts for 65% of total consumer spending. This includes housing, utilities, insurance, streaming, broadband, cell phone service, entertainment, healthcare, flights, lodging, rental cars, memberships, and more. The remaining 35% is spread across consumer durables (cars, computers, furniture, electronics, etc.). .) and nondurable goods (food, gasoline, clothing, shoes, supplies, etc.).
The three-month moving average of service spending, adjusted for inflation, increased by 0.2% from the previous month and by 2.1% from a year earlier.
Spending on durable goods adjusted for inflationup 0.9% for the month and 6.7% compared to the same month last year.
durable goods prices It has been declining for a year, which means negative inflation. The Durable Goods PCE Price Index for November announced today was down 0.4% from the previous month and 2.1% from the same month last year.
not adjusted for inflation, spending on durable goods increased 0.5% month-on-month and 4.5% year-on-year. Did it triple because consumers lowered the price of durable goods?
The three-month moving average increased by 0.5% from the previous month and by 5.0% from the previous year.
It’s simply amazing that spending on durable goods continues to be significantly above pre-pandemic trends, even after the huge spike during the pandemic. It doesn’t matter if your house, garage, storage locker, or tool shed is filled to the ceiling. Inflation-adjusted spending is now roughly at levels at the very peak of the stimulus boom.
Expenditures on nondurable goods adjusted for inflationNovember increased by 0.3% compared to October, and increased by 2.0% compared to the same month last year.
The three-month moving average rose 0.2% from the previous month and 1.4% from the previous year. Spending had been declining slowly after the pandemic’s massive surge, but it never returned to pre-pandemic trends, and by the second half of the year it had fallen roughly parallel to, but far above, pre-pandemic trends. It started to increase again. And it looks like they’re trying to gently pull it away. These are truly amazing graphs.
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