Posted by Joseph Y. Calhoun, III

The BEA released figures today for Personal Income and Outlays:

Personal income decreased $20.7 billion, or 0.2 percent, and disposable personal income (DPI) decreased $11.8 billion, or 0.1 percent, in November, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $56.1 billion, or 0.6 percent.  In October, personal income increased $11.3 billion, or 0.1 percent, DPI increased $16.7 billion, or 0.2 percent, and PCE decreased $102.6 billion, or 1.0 percent, based on revised estimates.

Real disposable income increased 1.0 percent in November, compared with an increase of 0.7
percent in October.  Real PCE increased 0.6 percent, in contrast to a decrease of 0.5 percent.  The price index for PCE decreased 1.1 percent, compared with a decrease of 0.5 percent.

Expectations for personal income were for a drop of 0.1% so this was slightly less than expected. The spending number was expected to drop 0.8% so it was slightly better than expected.

More interesting though is the last paragraph which shows a 1% increase in real income and a 0.6% increase in real expenditures. Nominal changes in income and outlays don’t really tell you much. What we are really interested in is not the dollar volume of income or spending but how much stuff those dollars represent. Even if your income stays the same, if prices fall, you can buy more stuff and are therefore relatively better off. This was the first rise in real spending since May and is obviously good news.

Casey Mulligan at the Supply and Demand blog makes an interesting observation about how this might affect the Q4 GDP number:

I am admittedly an amatuer at high frequency forecasting (it has less to do with the basic economic forces I have been emphasizing, which may take a couple of quarters to work out), but there are enough significant inconsistencies with the experts’ forecasts that I have to issue my own:

• Q4 real (and seasonally adjusted) personal consumption expenditure will fall less Q3-Q4 than it did Q2-Q3.
• Q4 real (and seasonally adjusted) GDP will fall less than 1.0% (that is: less than 4.0% at annual rates) Q3-Q4, and may rise.
• Q4 labor productivity will be higher than Q3’s (that is, productivity growth Q3-Q4 will not be negative).

I’ve seen estimates that Q4 GDP may drop as much as 7% (annualized), but this seems to indicate that it might not be that bad. With everyone expecting the worst, a better than expected Q4 GDP number would probably be greeted warmly by the stock market.

The savings rate rose to 2.8%. That’s not high enough yet, but at least its going in the right direction. Savings last month totaled almost $300 billion. Just think, if we keep saving $300 billion a month, as a nation we can cut our total debt in half in just less than 7 years. That’s about what it will take to get our total debt to GDP ratio back to the 120% that is the long term average. As I said, 2.8% isn’t high enough.