Soft econ reports for Dec and Jan make lower revisions likely

I know that Wall Street fear about the coronavirus is likely the big reason behind a large decline in stocks to end January. But soft readings on personal income and spending for December didn’t help.

Personal income increased $40.7 billion (0.2 percent) in December according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $30.6 billion (0.2 percent) and personal consumption expenditures (PCE) increased $46.6 billion (0.3 percent) (table 5).

Real DPI decreased 0.1 percent in December and Real PCE increased 0.1 percent. The PCE price index increased 0.3 percent. Excluding food and energy, the PCE price index increased 0.2 percent (table 9).

That’s pretty lame, especially the drop in real disposable income, which is the 2nd decline in the last 3 months. And personal income was revised down for the previous two months as well. Not really what you want.

There is one caveat with the income numbers, as personal income growth was limited was due to the end of the farm subsidies that were given out from DC to defray the problems resulting from other policies.

The increase in personal income in December primarily reflected increases in compensation of employees and personal interest income that were partially offset by a decrease in farm proprietors’ income (table 3). Farm proprietors’ income decreased $36.2 billion in December, which included a decrease in subsidy payments associated with the Department of Agriculture’s Market Facilitation Program.

If you look at that Farm Proprietor’s stat month-by-month over the last 4 years, you can see how Farm income dropped in the last half of 2017 and most of 2018, and the spikes that came with the Trump Farm subsidies in December 2018 and 2019.

The mediocre income and spending figures add to December’s rise in the trade deficit for goods. Both of these bits of information came out after Q4 GDP was released on Thursday, which had a preliminary reading of 2.1%. That tells me that the next reading in February will be lower, quite possibly below 2%, because it was a drop in imports that was the largest "increase" in GDP out of any factor measured.

And when you add in a bad PMI report on Midwest manufacturing, it doesn't lend itself to a uptick in that growth level for next year.

The numbers: Manufacturing activity in the Midwest sank in January to the lowest level since December 2015, according to a survey of businesses released Friday by MNI Indicators.

The Chicago Purchasing Managers Index fell to 42.9 this month from 48.9 in December. Any reading below 50 indicates deteriorating conditions.

Economist surveyed by Econoday had expected a small dip to 48.5.

That sure isn't going to help things in this part of the country, and is a bad sign for 1Q 2020 overall.

A larger indicator will come later next week when we get the January 2020 jobs report, along with the benchmark revisions for most of 2019. And given that job growth through 2019 was originally overstated by more than 500,000 jobs, it seems likely that we will see total job growth for last year fall to its lowest level in 8 years.

Let's keep an eye on this new data coming in on past economic performance, because it might mean that the already-tepid figures from late 2019 are even slower than we already know.

EDIT- Here's UW's Menzie Chinn with a nice response to anyone saying "Promises made, promises kept."

If you were wondering...Fm the campaign era Trump Pence website: "Boost growth to 3.5 percent per year on average, with the potential to reach a 4 percent growth rate." pic.twitter.com/uuNAgvI3kx

— Menzie Chinn (@menzie_chinn) February 1, 2020