Personal Income Under Pressure
As we have been stressing for months now in various postings the consumer is what provides the final demand on business. Without that final demand on business there is little impetus for business to hire which ultimately leads to more pressure on wages as competition for job openings rise. It is this spiral that is so dangerous for the economy and one that is very difficult to break.
The Bureau of Economic Analysis released their June personal income and outlays report for June this morning and both income and spending were soft, reflecting slow job growth, a decline in motor vehicle sales, and a decrease in gasoline prices. Personal income in June edged up 0.1 percent, easing from a 0.2 percent rise in May. The market median called for a 0.2 percent rise for the latest month. Wages & salaries were unchanged, following a gain of 0.2 percent the prior month while the year over year numbers are far more disappointing showing a recent peak in wages in the current cycle.
However, the numbers wren't completely disastrous as real disposable personal income increased 0.3 percent in June, compared to no change in May as both inflation was negative (the reason for the upward adjustment) and taxes dipped in the latest month.
However, when it comes down to the economy the important numbers were consumer spending which declined 0.2 percent rise after posting a 0.1 percent uptick in May. By components, durables dropped 0.4 percent after falling 1.3 percent in May. Non-durables dropped 0.6 percent, following a 0.3 percent dip the month before. Services were flat declining from a 0.4 percent jump in May.Year-over-year inflation is still eating into the real disposable income of individuals particularly in the areas of food and energy. Headline prices are up 2.6 percent-the same as in May. The core is up 1.3 percent on a year-ago basis, matching May's pace. Today's report not paint a rosy picture for the consumer sector, while most analysts are quick to dismiss the numbers due to "transitory effects" there is potentially a much bigger cloud to worry about which is simply that the recession that began in 2007 is now trying to reassert itself given the lack of government intervention. Personal incomes on a year over year basis have been declining and expenditures are eating up a larger and larger share of those incomes as consumers struggle to maintain their standard of living. This is an unsustainable trend longer term and with the lack of credit availability to fill the "funding gap" the pressure on the "average American" is quickly mounting. The next couple of weeks of economic reports should be very telling.