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Chart of the day: Income and spending in October

Household spending regained its pre-pandemic level earlier this year and has continued to grow since then at about the same rate as it did before the pandemic. Adjusted for inflation, spending was up 0.7% in October compared to September:

The news is not so cheery on the income front. Adjusted for inflation, personal income has been declining since July and declined again in October by -0.3% compared to September:

How long can spending hold up if income is declining? That all depends on whether households still have savings stashed away from all the stimulus bills. But they don't:

My prediction: With savings back to normal and real income declining, spending is going to flatten out too. This might not happen until after the holidays, but unless something changes I suspect January will be the start of a pullback among consumers. Supply chain problems will be largely under control by then too, which suggests to me that inflation will also start coming down.

This is just my layman's guess, of course. We'll see.

17 thoughts on “Chart of the day: Income and spending in October

    1. Special Newb

      Well that is happening. All the data we have on the Great Resignation is that the Resignators are leaving for jobs that are less shitty. If our economy particularly restaurants can work without widespread exploitation... we will see

  1. D_Ohrk_E1

    So, if it turns out that after the effects of the exogenous (pandemic) event has been cleared out of the system, we end up going back to the zero lower bound and the threat of deflation, can we demand that Larry Summers be fired and that MSM never print another word from him again?

  2. rational thought

    Something seems to not be quite right looking at all three charts put together .

    The first one shows a large decline in consumption for a significant period below trendlines , and we are only getting back to trendline now . So still a lot of spending below trendline that we have not made up ( and perhaps will not or should not ever fully make up).

    The second shows income well above trendlines for around the same period and only now dropping back to trendlines, clearly due to artificial increases due to pandemic stimulus.

    The combination of the area in first chart below trendline for consumption area above in 2nd for income should be extra savings. So then we should still have that extra savings today. And being back to trendlines in income and consumption should only mean that the CHANGE in savings should be back to trendline, not amount of accumulated savings.

    So where did that gap in past year go if not to savings?

      1. rational thought

        Actually Kevin's first chart shows nothing like that. It really never shows consumption going above trendline and only just recently getting back to trendline . So, all of the prior lost consumption and " pent up demand " is still there, waiting to be " made up" . Unless it never will be .

        But third chart shows a massive savings decline of 6 trillion after initial build up . Which should have been from satisfying initial pent up demand. And thus there should have been a period in chart #1 where consumption was well above trendline making up for period that it was below. But not there.

        Maybe the third savings chart of savings does not include investments in stocks and such, or other hard investments not considered personal consumption. So net result of stimulus was not supporting personal consumption but instead personal investment other than bank accounts and such .

            1. Spadesofgrey

              Dude, the chart is total value of spending. Spending is at the point where it would have been if the lockdowns never happened.

  3. Spadesofgrey

    This doesn't account for debt levels, in real terms have a bunch of room. This is where demand will come from while real income and spending normalize.

  4. KenSchulz

    Some of the drop in consumption was for services produced simultaneously with their consumption: live concerts, sports events, travel, plays, restaurant meals and the like. Clearly, very little of that lost consumption will ever be made up. People may have spent more on goods, although it is likely that additional spending was limited to certain categories (employees WFH spent less on office attire).

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