BEA releases everything all at once, so we have plenty more today than just an inflation print. Here's a couple of interesting ones.
First up is plain old Personal Consumption Expenditures. I'm showing this because it's unusual for PCE to go down substantially on a raw dollar basis even during recessions. But in January it was down nearly $80 billion from December:
That's not so great, but disposable income surged sharply:
Even on a conventional year-over-year basis income was up 1.8%. That isn't great news for inflation hawks, but it's good news for workers.
If you're an inflation hawk worried about demand-pull inflation, this is actually somewhat good news.
Declining expenditures is in line with declining consumer confidence. No real surprise here.
Yeah, people spend when they are confident and unemployment is surging across multiple sectors. My company has very limited federal exposure but the IRA cuts are hurting and killing a bunch of potential new business.
Also the previous January was also low (but not as low). People bought stuff for Christmas and then didn't want to spend any more and/or already had a new sweater, I guess. What about the Januarys before that?
Januarys are always a little funky for a variety of reasons. January seasonal adjustments are large, so these can sometimes distort the picture. Companies often raise prices in January, so that's a factor. It's just always a good idea to treat January numbers with a large grain of salt.
How would severance packages show up in the data. Here's your pay for unused vacation days...ba-bye...
It looks like people are nervous. Republicans might tell pollsters they like what Trump is doing but the cutback in spending isn't from Democrats alone.
The actual effects of government cuts (workers and spending) haven't even shown up in the data yet.
The interesting thing will be March. Tens of thousands of federal employees AND contractor employees on unemployment all across the country. Tariffs raising prices and cutting consumption, etc. etc.
I just hope these new tariffs aren't another bluff.
Even if Trump changes his mind on tariffs yet again, the uncertainty is bad for business. Krugman has a good article on this subject today:
https://open.substack.com/pub/paulkrugman/p/surprise-chaos-is-bad-for-business?r=4xr555&utm_campaign=post&utm_medium=web
The money quote:
Imagine yourself as the CEO of a U.S. company considering a range of possible investments, whose likely profitability depends on future federal policy. For example, some factories will be worth building if America honors the free trade pact with Canada and Mexico Trump himself signed in 2020, a minor revision of a free trade pact that took effect in 1994.
But those factories won’t be worth building if Trump rips up that agreement and imposes high tariffs at both our northern and southern borders. Instead, you’ll want to make defensive investments, designed to limit the damage of being cut off from Mexican and Canadian customers and suppliers.
So which investments will you make? A likely answer is, “None of them.” The rational thing, surely, is to hold off on big spending until, one hopes, there’s more clarity about policy.
Axios has a story on the effect of tariffs and talks about the current Dallas Fed's survey showing prices going up and negative economic activity. You know...like stagflation. The study they cite says Texas (Texans and Texan companies) will pay $47B in tariffs, the most in the nation with California far behind at $33B.
It would be helpful if the PCE graph indicated the gross amount of PCE, so we can get a sense of proportion. How big a fraction of total expenditures is the decline?
Income rose, expenditures plummeted and month-to-month inflation jumped. Sounds like some good old fashioned Tricky Dick-Style Republican Stagflation to me.....
Wait until we get the print from February. People are snapping shut their purses, battening down for the storm of layoffs Trump is forcing throughout the government and over wide swathes of the non-profit sector.
Uh-oh, Atlanta Fed GDPNow just fell off a cliff:
https://www.atlantafed.org/cqer/research/gdpnow