Income, spending numbers give more proof of skidding economy at end of 2020

We already had plenty of proof that there was an economic slowdown happening at the end of 2020, but Friday’s income and spending report gave extra confirmation that things took a step back in December.

Personal income increased $116.6 billion (0.6 percent) in December according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $111.6 billion (0.6 percent) and personal consumption expenditures (PCE) decreased $27.9 billion (0.2 percent).

Real DPI increased 0.2 percent in December and Real PCE decreased 0.6 percent. The PCE price index increased 0.4 percent. Excluding food and energy, the PCE price index increased 0.3 percent.

And much of that increase in income was due to government payments, and not a boost in wages and salaries. This includes $48.3 billion (annual basis) in newly enhanced unemployment benefits and $44.4 billion in additional payments to hospitals and other health care providers under the CARES program.

As you can see, wages and salaries have still not gotten back to the levels they were at before the COVID World seeped in, and unemployment benefits remain elevated, going back on the rise in December.

I’d expect incomes to jump more in January as the $600 payments from DC kick in, and a full month of the 300-a-week add-on for unemployment also is registered. But that's only a temporary boost, and if wages and salaries don't recover, it's going to be hard to sustain consumer spending.

And consumer spending is already flagging. Not only did total consumption expenditures go down for the second straight month, but October's gain was revised down, and November's revisions showed a bigger loss than previously reported. That means consumption dropped by $73 billion compared to what was reported last month, and that's before inflation is accounted for.

Add inflation in, and consumption is no better than it was in August, and has had a notable decline in the last two months.

The drop in income for business owners showed that the subsidies from the CARES Act was fading at the end of 2020, and "regular" operations were also still depressed. This helps explain why PPP and other supports were renewed in the stimulus bill signed in the last few days of the year.

So while the COVID recession of the Spring may be over, with Q4 reporting 4.0% (annualized) growth this week, you need to remember that this is an AVERAGE rate across 3 months. It is clear that the economy stalled out and may have declined in December, and with the virus still rampaging in much of America and travel still limited, there is little to believe that it got much better in the first month of 2021.

And as you can see, we are still not back to the economic activity we had at the start of 2020, which is why more stimulus/stabilization is needed, and quickly.