October 1, 2021
Personal consumption expenditures rose 0.8% in August after falling 0.1 in July after climbing 1.1% in June.
After adjusting for inflation real consumption spending rose 0.4% in August after having fallen 0.5% in July after having risen 0.6% in June. Inflation is eating away at the nominal increase Our guess is that going forward real spending will continue to rise at a respectable pace as consumers continue to open their wallets.
Personal income rose 0.2% in August after having jumped 1.1% in July and 0.2% in June. The $1,400 stimulus checks caused transfer payments to surge in March. But transfer payments have now returned to a more normal level. The wage component of income rose 0.4% in August, 1.0% in July and 0.8% in June. Fueled by steady job gains and rising wages it has risen 3.9% in the past year but has surged to a 8.9% pace in the past three months. If employment and wages continue to climb, that should easily sustain the consumers ability so spend in the months ahead.
What that means is that real disposable income — what is left after paying taxes and adjusted for inflation — fell 0.3% in August after rising 0.7% in July after falling 0.5% in June. In the past year this series has grown 0.2%, but it should grow in the months ahead at a rate roughly equal to its 2.7% average growth for the foreseeable future.
The savings rate surged to 33.8% in April of last year as the economy was essentially shut down. It has since declined to 9.4% in August which is still a very high level. With the 9.4% savings rate there is about $0.4 trillion of surplus savings (savings above the normal 7.0% pace). Those funds are liquid and available for consumers to spend at any time.
We expect GDP growth of 8.0% in Q3. We expect to see GDP growth for 2021 as a whole of 7.8% and 5.1% in 2022 as more labor becomes available and as supply bottlenecks are alleviated.
Stephen Slifer
NumberNomics
Charleston, SC
Excellent analysis and charts. I am amazed home high consumer confidence remains with all the talk of recession in the media. I just added your site to my sites list of recommended economic links.
I think consumer confidence is based to a large degree on what is happening to the stock market. We all read the stuff that is published in the print media, magazine articles, blogs, tweets, etc. But perhaps there is so much information out that that we get ourselves confused and go back to how all that is affecting the stock market. If we as consumers were seeing obvious signs of prices rising because of the tariffs being applied to Chinese goods perhaps we would be less confident. That may be coming, but we are not there yet.
All the best.
Steve