January 31, 2020

Personal consumption expenditures rose 0.3% in December after having risen 0.4% in November.  Over the course of the past year consumer spending has risen 5.0%.  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 December after having risen 0.3% in November.  Real consumer spending has risen 3.3% in the past year. And why shouldn’t consumer spending remain robust?

Consumer confidence is near a 15-year high level and is consisted with our projected  2.5% pace of consumer spending 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 0.2% in December after having climbed 0.4% in November.  During the past year personal income has risen 3.9%.

Real disposable income, which is what is left after adjusting for inflation and taxes, fell 0.1% in December after having risen 0.3% in November.  As a result real disposable income has risen 2.0% 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 1.5% pace which is in line with its 1.7% average increase in the past 25 years.

With a 0.2% increase in income and a 0.3% gain in spending in December savings rate fell 0.2% to 7.6%.  The long-term average savings rate is 6.0%  The consumer can easily maintain or even increase his or her pace of spending in the months ahead.

Stephen Slifer


Charleston, SC