Income and spending report shows more deceleration to lower growth in 2019

In between all of the other economic news of the week, we had the US personal income information and spending report for June. It wasn't a major market mover, as it showed decent-if-not-great increases in those two categories.

Personal income increased $83.6 billion (0.4 percent) in June according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased$69.7 billion (0.4 percent) and personal consumption expenditures(PCE) increased $41.0 billion (0.3 percent).

Real DPI increased 0.3 percent in June and Real PCE increased 0.2 percent. The PCE price index increased 0.1 percent. Excluding food and energy, the PCE price index increased 0.2 percent.

Even though the spending growth was the lowest in 4 months, it was still decent and indicative of an economy still growing vs recessing.

But much like with the GDP reports from last week, the last few years had their data revised, and that offered more intriguing information.

Personal income was revised down $0.1 billion, or less than -0.1 percent in 2014; revised down $1.8 billion, or less than -0.1 percent in 2015; revised down $4.0 billion, or less than -0.1 percent in 2016; revised up $47.9 billion, or 0.3 percent in 2017; and revised up $249.6 billion, or 1.4 percent in 2018.

Those are some impressive increases for 2017 and especially last year. But what’s also noteworthy is that most of that revised increase in income went to the investor class, and not workers.

For 2017, revisions to personal income primarily reflected an upward revision of $28.6 billion to personal interest income, a $21.4 billion upward revision to personal dividend income, and a $17.3 billion upward revision to proprietors’ income with inventory valuation and capital consumption adjustments.

• For 2018, revisions to personal income primarily reflected an upward revision of $86.2 billion to personal interest income, an upward revision of $75.7 billion to personal dividend income, and an upward revision of $67.2 billion to wages and salaries.

The revisions also show that farm losses were nearly $10 million more last year than what was estimated (and farm incomes fell another $43.8 billion in the first 3 months of 2019), but owners of non-farm businesses had a combined increase of nearly $38 billion in 2017 and 2018.

The revised increase in incomes did not go along with a similar upwards revision for consumer spending over the last two years.

Personal outlays was revised up $0.9 billion, or less than 0.1 percent in 2014; revised down $8.9 billion, or -0.1 percent in 2015; revised down $16.4 billion, or -0.1 percent in 2016; revised down $7.4 billion, or -0.1 percent in 2017; and revised up $46.4 billion, or 0.3 percent in 2018.

While that $46.4 billion upward revision in spending is less than 20% of the revised increase in incomes, it also makes for a steadier picture than I had previously seen in the economy. If you look at the revised 3 years of income and spending data, you can see the big jump in incomes at the end of 2017 and start of 2018, mostly via higher dividends at the end of 2017 and a jump in wages and salaries at the beginning of both 2018 and 2019.

The higher incomes, reduced taxes after the GOP Tax Scam took effect at the start of 2018, and lesser bump in consumption means that last year's personal saving rate is significantly higher, going from 6.7% at the end of 2017 to 8.8% in December 2018. It’s come down a bit since then.

So the upshot of this data folds in neatly with the GDP data that showed the economy returned to the mid-2% growth rates of 2014 and 2015 in 2017, and stayed around that growth level in 2018. But it also reiterates that the GOP Tax Scam had at best a minor effect in changing growth levels in 2018, other than to help richer individuals by pumping up dividends and stocks

Now we are slowly decelerating in 2019, both in jobs and income growth. But we’re also not in recession, at least yet, so a slower-growth merry-go-round continues as we start Q3 2019. But one little hiccup in the chain seems likely to set off a lot of other effects, and the longer we wait for that hiccup, the more the comedown will be.