Income & Spending Much Worse Than They Sound

As you would imagine, personal income and spending are coming into negative territory.  Incomes are still holding up relatively well, assuming you didn’t get laid off, and spending is continuing to soften.  The good news in personal savings is actually bad for the economy.

Personal income for December was -0.2% rather than -0.4% aseconomists were expecting. The -0.2% from November was also revised to-0.4%.

Personal spending is where the largest cuts are coming. Expenditures were -1.0% rather than -0.6% expected from economists.  This isafter a revised -0.8% in November.

Savings are actually rising.  The savings rate was 3.6% of income in December, up from 2.8% in November.  The good news is that Americans are finally putting money away for a rainy day.  The bad news is the more that is saved, the less is spent.  And fewer goods get purchased, and sales drop, and people get fired….. You get the idea.

But here is the issue, the December quarter is the Christmas quarter.That skews the data.  Go ask any of your friends how much they spent inJanuary.  That number is going to be one that the government hopes itwon’t have to release.

On Friday we will get to see just how bad the jobs are doing.  We lost more than 500,000 jobs in December and unemployment reached 7.2%.  GDP was also down over 3% for Q4-2008.  These spending numbers would have been far worse if it wasn’t for the Christmas report.

These are trends we have to get used to.

Jon C. Ogg
February 2, 2009