Saturday, June 30, 2012

Updated look at income and savings: in which I eat crow

The Bureau of Economic Analysis released their first view of May's economic activity yesterday and also revised their Jan-April numbers, too. Unfortunately, the update is not entirely consistent with the view I offered last week, and so I must revise my analysis (please pass the crow). Here's an updated view of the same chart I showed you last week, limited to just the more recent months:
Source: Bureau of Economic Analysis
If you'll recall, my take before was that, with consumers' buying power rising and their savings rates falling, consumption would accelerate and thus the fears of a slowdown in our recovery were unfounded. This was a contrarian view to what we've been hearing about job growth stalling and consumer sentiment souring. However, the updated data shows that while buying power is indeed picking up steam, so has the savings rate.

The rise in savings rate is consistent with several recent surveys that have suggested that consumers are less optimistic than they were a few months ago. My interpretation was that the surveys were less meaningful than the savings data, because money speaks louder than words (call it the Bobbi Fleckman principle). Still, the income gains don't reflect a basis for the relative pessimism. Even if you look at buying power on a per capita basis, things are clearly getting better:
Ok, so maybe the nice 3-month run we're on will later get revised down. Or maybe consumers take longer to acknowledge the improvements and they'll perk up over the summer. Or maybe the improvements are too mild to overshadow the b.s. you hear on the news. Who knows, but I do believe there is a slight disconnect between reality and our perception of it. Or maybe my perception of it. Pass the ketchup.

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