Spending, income and GDP show an economy that had blah growth before this week

It may be less relevant given the wreckage on Wall Street in the last week, but we got new income and spending totals for January on Friday, which indicated things were OK before we heard the word “coronavirus.”

Personal income increased $116.5 billion (0.6 percent) in January according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $101.4 billion (0.6 percent) and personal consumption expenditures (PCE) increased $29.6 billion (0.2 percent).

Real DPI increased 0.5 percent in January and Real PCE increased 0.1 percent. The PCE price index increased 0.1 percent. Excluding food and energy, the PCE price index increased 0.1 percent.

The increase in personal income in January primarily reflected increases in compensation of employees and social security benefit payments (related to annual cost of living adjustments), and other government social benefits to persons, which includes the Affordable Care Act refundable tax credit (table 3).

That last paragraph is important. A 0.6% increase in income for a month looks good, but this is a one-time bump that won’t be counted on to continue in the future months. December’s income growth also declined from 0.2% to 0.1% before inflation, so nothing too special there.

What's a bit worrying is something I noticed last week - job growth in the Summer months of 2019 were overstated by nearly 350,000, and that ended up reducing the totals for wages and salaries in the last half of the year by $68 billion.

So maybe there's a reason that the "booming economy" talk isn't something that rings true to you. Because these numbers keep getting revised down, so it wasn't that great to begin with.

The spending totals for January were modest, with the revisions being a mixed bag. December revised up by 0.1% but November taken down by 0.1%, and combined with the 0.2% pre-inflation increase for January, it indicates that consumer spending growth was minor as 2020 got underway, much like we saw for the 4th Quarter of 2019.

Speaking of economic growth for Q4 2019, the revised figures from that were released on Thursday, and proved me wrong. I figured we would see real GDP growth fall below 2% given the new information of higher imports and other developments from December’s data that usually reduce GDP. But that wasn’t the case.

Real gross domestic product (GDP) increased at an annual rate of 2.1 percent in the fourth quarter of 2019 (table 1), according to the "second" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP also increased 2.1 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was also 2.1 percent. In the second estimate, an upward revision to private inventory investment was offset by a downward revision to nonresidential fixed investment…..

In the second estimate, the fourth-quarter growth rate in real GDP was unrevised from the advance estimate. Private inventory investment, exports, federal government spending, and residential fixed investment were revised up. These upward revisions were offset by downward revisions to nonresidential fixed investment, PCE, state and local government spending, and an upward revision to imports.

One other “boost” to GDP was the price index that accounts for deflation, which was revised down by 0.1% to an annual rate of 1.4%. Given how the price of commodities and related products have plummeted with the stock market in recent days, low inflation (or outright deflation) might be something that makes GDP look better than it seems in real life. Well, at least until the layoffs begin, which is usually what has to happen for businesses to survive when revenues aren’t coming in.

So put these two reports and their revisions together, and you have a US economy that seems to have downshiftedfor growth in the last half of 2019 and in January of 2020. Now throw in crashing stocks and supply chain disruptions from this coronavirus scare, and combine it with the job market likely being maxed out? Ruh roh.