Premarket - Personal Income & Consumption
Personal Income & Consumption were reported for April early this morning, and the news is, well it depends on how you look at it. "The Greek" finds it an excessively negative report that also offers reason for hope.
Personal Income
Personal income was reported up 0.2%, compared to a 0.2% consensus expectation, as compiled by Bloomberg News. Personal spending also rose 0.2%, again meeting forecasts. So, on the surface we find another positive report. But, we look deeper here, and after adjusting for inflation, real income and spending were stagnant, or posted no change whatsoever.
The Real Bad News
Since real matters, the report hardly offers enthusing news. But it gets worse. The reality is that payrolls decreased across goods and service producing industries, where the core of the economy really is. Meanwhile, government wage and salary disbursements increased, offering some offset. Finally, rental income increased significantly, but rent is an expense for most Americans, not an income source. Also, income got a boost of $7.8 billion from economic stimulus checks, and that's not an ongoing source. So, as you see, organic weakness was mostly offset by synthetic and inflationary factors.
If rental income is increasing now, it's probably partly because rents may be rising as home ownership becomes more difficult. Another driver of the positive move in income was sales of assets, something we would consider most likely due to necessity in this environment, not investment gain.
As a result, we find this portion of the report excessively negative in tone. However, it shouldn't really be surprising considering the anecdotal evidence we see around us. General Motors (NYSE: GM) for instance just announced that one quarter of its workforce would be given early retirement so that the company could replace employees with new team members at half the cost. This has been a shared theme within the auto, airline and other industries (NYSE: F, NYSE: DAL), as unions make concessions in order to help preserve the ongoing operation of the companies in question.
Personal Consumption
Real spending actually declined fractionally, and that's not good. This occurred while the initial little bit of stimulus actually reached the hands of some Americans. Stimulus checks will have a much greater impact to May and June spending, and some impact to July, so perhaps the government timed the fuel injection perfectly. We've noted a recent uptick in weekly same-store sales though already. However, shoppers are certainly migrating to discount stores like Costco (Nasdaq: COST) and Wal-Mart (NYSE: WMT).
Purchases of durables and nondurables both decreased, while services spending rose. As we move forward, the factors of inflation and cost of living increase will battle with an eventual improving economy, and the victor will determine the rate of consumption growth.
Prices
The price index increased 0.2%, versus a 0.3% rise in March. Year-over-year, prices rose 2.1%, in line with expectations, and not especially concerning. Excluding food and energy, prices increased 0.1% month-to-month. Remember that prices will have risen to a greater extent in May, as oil and gasoline moved sharply higher.
Conclusion
Generally, this is not a positive report, but we can find hope in the fact that the economic stimulus seems well-timed. Americans will certainly benefit from it in the second quarter, but whether they spend or not is another question. In any event, we view it a helpful effort and good decision.
Please see our disclosure at the WallStreet Greek website. Article interests: AMEX: DIA, AMEX: SPY, AMEX: SDS, AMEX: DOG, AMEX: QLD, Nasdaq: QQQQ.
Personal Income
Personal income was reported up 0.2%, compared to a 0.2% consensus expectation, as compiled by Bloomberg News. Personal spending also rose 0.2%, again meeting forecasts. So, on the surface we find another positive report. But, we look deeper here, and after adjusting for inflation, real income and spending were stagnant, or posted no change whatsoever.
The Real Bad News
Since real matters, the report hardly offers enthusing news. But it gets worse. The reality is that payrolls decreased across goods and service producing industries, where the core of the economy really is. Meanwhile, government wage and salary disbursements increased, offering some offset. Finally, rental income increased significantly, but rent is an expense for most Americans, not an income source. Also, income got a boost of $7.8 billion from economic stimulus checks, and that's not an ongoing source. So, as you see, organic weakness was mostly offset by synthetic and inflationary factors.
If rental income is increasing now, it's probably partly because rents may be rising as home ownership becomes more difficult. Another driver of the positive move in income was sales of assets, something we would consider most likely due to necessity in this environment, not investment gain.
As a result, we find this portion of the report excessively negative in tone. However, it shouldn't really be surprising considering the anecdotal evidence we see around us. General Motors (NYSE: GM) for instance just announced that one quarter of its workforce would be given early retirement so that the company could replace employees with new team members at half the cost. This has been a shared theme within the auto, airline and other industries (NYSE: F, NYSE: DAL), as unions make concessions in order to help preserve the ongoing operation of the companies in question.
Personal Consumption
Real spending actually declined fractionally, and that's not good. This occurred while the initial little bit of stimulus actually reached the hands of some Americans. Stimulus checks will have a much greater impact to May and June spending, and some impact to July, so perhaps the government timed the fuel injection perfectly. We've noted a recent uptick in weekly same-store sales though already. However, shoppers are certainly migrating to discount stores like Costco (Nasdaq: COST) and Wal-Mart (NYSE: WMT).
Purchases of durables and nondurables both decreased, while services spending rose. As we move forward, the factors of inflation and cost of living increase will battle with an eventual improving economy, and the victor will determine the rate of consumption growth.
Prices
The price index increased 0.2%, versus a 0.3% rise in March. Year-over-year, prices rose 2.1%, in line with expectations, and not especially concerning. Excluding food and energy, prices increased 0.1% month-to-month. Remember that prices will have risen to a greater extent in May, as oil and gasoline moved sharply higher.
Conclusion
Generally, this is not a positive report, but we can find hope in the fact that the economic stimulus seems well-timed. Americans will certainly benefit from it in the second quarter, but whether they spend or not is another question. In any event, we view it a helpful effort and good decision.
Please see our disclosure at the WallStreet Greek website. Article interests: AMEX: DIA, AMEX: SPY, AMEX: SDS, AMEX: DOG, AMEX: QLD, Nasdaq: QQQQ.
posted by The Greek | 9:20 AM
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