Revisions to PCE and Income… Nasty

Personal income dropped to the lowest point in four years according to reports. This is in advance of the retials sales release later this week. How will consumers spend if there are less jobs now and lower income?

Add to this that the personal savings rate is growing exponentially and we may be seeing a top for the high and mid-priced retail establishments.

More concerning is the continual revisions to the downside that we have seen over and over. This particular report was nasty as the spending component dropped by 66% when comparing the actual to the revised. This will also create a better number for the current month as it is compared to the previous..

If there were not a revision (using simple math) we could say that:

Change MoM = (Month1 – Month2)/Month1

Therefore, if there were no revisions, the personal spending would have been about ZERO as the change from the previous report of .3% to .4% is negligible. So the revision actually helped to boost the current number. As for personal income, the number is again worse.

The PCE deflator is rising and that is actually a good and bad sign. Of course year over year is has fallen, but monthly is steadily showing upward progress. This is showing that goods are costing more as material cost rise. In effect, you get less than what you pay for.

The report also showed that real or,   adjusted for inflation, purchases fell 0.1%

“PCE Deflator: A measure of inflation based on changes in personal consumption. Unlike the CPI, which is based on a fixed basket of goods, the Personal Consumption Expenditures (PCE) Deflator finds the average increase in prices for all domestic personal consumption. PCE Deflator has been shown to be a more comprehensive and consistent gauge of inflation in the US.”