Personal income increased $28.2 billion, or 0.2 percent, and disposable personal income (DPI) increased $18.9 billion, or 0.2 percent, in February, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $86.0 billion, or 0.8 percent. In January, personal income increased $26.5 billion, or 0.2 percent, DPI increased $5.0 billion, or less than 0.1 percent, and PCE increased $40.9 billion, or 0.4 percent, based on revised estimates.
Real disposable income decreased 0.1 percent in February, compared with a decrease of 0.2 percent in January. Real PCE increased 0.5 percent, compared with an increase of 0.2 percent.
Real disposable income went down as the cost of living (necessities) went up faster than incomes. But spending increased faster, which means we’re spending more than we make — again.
We are again into the space where people are clawing at the edge of the cliff trying to avoid disaster. It’s not going to work any better than it has in the past.
The result was a drop in the “savings” rate to 3.7% from 4.3% last month, both well below the “reasonable” 5% rate. And this is not actual savings (capital formation) either since debt pay-downs are included in “savings.” In point of fact we have not de-levered to a material degree at all and now it appears that the consumer is getting dangerously close to the “drowning, actively and now” zone, likely driven to a large degree by gas prices.
It is never good when spending is rising faster than earnings folks.