September 27, 2019

Personal consumption expenditures rose 0.1% in August after having risen 0.5% in July after having climbed 0.3% in June.  Over the course of the past year consumer spending has risen 3.7%.  What we are really interested in is consumption spending in real terms (i.e., after adjustment for inflation) because that is what goes into GDP (shown above).    On that basis consumption spending rose 0.1% in August after having risen 0.3% in July after having climbed 0.2% in June .  Real consumer spending has risen 2.3% in the past year. And why shouldn’t consumer spending remain robust?

Consumer confidence is declined somewhat from a 15-year high level as many economists worry about the extent to which slower growth overseas might retard GDP growth in the U.S. in the months ahead.  However, its current level is consistent with our projected  2.8% pace of consumer spending this year and 2.5% in 2020..

Meanwhile, the economy continues to generate about 170 thousand new  jobs per  month which is what generates the income necessary to boost our pace of spending.  If employment grows, income will grow, and consumer spending will continue to climb.

Personal income rose 0.4% in August after having climbed 0.1% in July and 0.4% in June  During the past year personal income has risen 4.6%.

Real disposable income, which is what is left after adjusting for inflation and taxes, rose 0.4% in August after having been unchanged in July and rising 0.3% in June.  As a result real disposable income has risen 3.0% in the past year compared to its long-term average growth rate of 2.7%.

Real disposable income per capita is generally regarded as the best measure of our standard of living.  It is currently rising at a 2.4% pace which is well above its 1.6% average increase in the past 25 years.

With a 0.4% increase in income and a 0.1% gain in spending in August the savings rate rose 0.3% to 8.1%.  The long-term average savings rate is 6.0%  The consumer can easily maintain his or her pace of spending in the months ahead.

Stephen Slifer


Charleston, SC