This is a wonkish post with Lots Of Acronyms (LOA), so I apologize upfront. I've kept things as simple as possible without distorting the results.
In this neo-Keynesian, debt-based fantasy called the American economy, personal consumption expenditures (PCE) make up about 70% of Gross Domestic Product (GDP). Official data from the Bureau Of Economic Analysis (BEA) continues to show that both inflation-adjusted (real) PCE and personal income are growing, signalling that the "recovery" is in fullswing.
In the ideal world imagined by the likes of Mark Zandi or Paul Krugman, spending increases without limit, personal income grows to support that spending, and the savings rate remains in positive territory, indicating that growing consumption is well-supported. That is precisely the world the BEA described in its latest Personal Income And Outlays report. Calculated Risk passed on the Good News in his report on the report.
Personal income increased $67.0 billion, or 0.5 percent ... Personal consumption expenditures (PCE) increased $60.7 billion, or 0.6 percent [in March].
Real PCE — PCE adjusted to remove price changes — increased 0.2 percent in March, compared with an increase of 0.5 percent in February...The personal saving rate was unchanged at 5.5% in March.
Personal saving -- DPI less personal outlays -- was $651.2 billion in March, compared with $647.5 billion in February. Personal saving as a percentage of disposable personal income was 5.5 percent in March, the same as in February.
This graph [2nd below] shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the March Personal Income report.
One of the surprises in the Q1 GDP report was the 2.7% annualized growth rate for PCE. PCE growth in January and February was revised up significantly, and PCE in March increased at a 3.1% annualized rate (over the last 3 months).
Even Calculated Risk admits there are big holes in this happy story.
The second graph [not shown here] shows real personal income less transfer payments as a percent of the previous peak. This has been slow to recover — and real personal income less transfer payments declined slightly in March. This remains 3.1% below the previous peak.
In other words, inflation-adjusted income is lower than it was prior to the recession (the previous peak) if you don't count government transfer payments. And as I described in America's Road To Perdition, Americans are now more dependent on transfer payments than they've ever been at any time in the nation's history.
Americans depended more on government assistance in 2010 than at any other time in the nation's history, a USA TODAY analysis of federal data finds. The trend shows few signs of easing, even though the economic recovery is nearly 2 years old.
A record 18.3% of the nation's total personal income was a payment from the government for Social Security, Medicare, food stamps, unemployment benefits and other programs in 2010.
Wages accounted for the lowest share of income — 51.0% — since the government began keeping track in 1929...
The consumption/income/savings rate picture looks much, much worse if you do the simple calculations carried out by Jake over at his blog Econompic Data — Darn Nice Economic Eye Candy.
Also released this morning was personal income and consumption for March. The chart below shows personal income, personal consumption, and personal consumption less transfer payments (defined as money given by the government to its citizens). Excluding these payments, which includes unemployment benefits, the savings rate is... wait for it... negative (good over the short run perhaps, but without hiring this hardly seems sustainable).
Yes, it's true. If you subtract personal consumption from personal income, and then further subtract government transfer payments, the savings rate in America is negative. As Jake notes, without hiring, this hardly seems sustainable. Even with hiring, assuming that most of those new jobs are low-paying, part-time or both, as has been the case up to now, this trend hardly seems sustainable. In fact, what is most unsustainable about it is the continuation of the transfer payments themselves!
You might ask where does the government come up with these rosy numbers on income, savings and the rest? Although I don't have time to answer that question at length today, all you need consider is that the government lumps together the consumption, income and savings data of the wealthy with the consumption, income and savings of the rest of us. Yahoo's Daily Ticker covered the story last month in The Rich Are Back! Luxury Spending Jumps As Income Disparity Widens.
The U.S. economy is improving. Based on GDP growth, the recession is long behind us and the job market continues to make solid gains each month, even if we're still nowhere near full-employment.
But life seems especially sweet for America's most affluent. Rich Americans (defined as those with discretionary income of $100,000 or more) are set to spend $359 billion on luxury items this year, up 8% or $26 billion from the previous year. In the last three years, luxury spending has nearly doubled, according to an American Express Publishing and Harrison Group survey.
The bottom line is that personal consumption in America, at least as far as those who don't have at least $100,000 of discretionary income are concerned, is an unsustainable House of Cards. It has no future.