The Associated Press, Bloomberg and Reuters all focused on the supposedly positive news of increased consumption reported in today's "Personal Income and Outlays" release from the government's Bureau of Economic Analysis. In the process, two of the three ignored a particulary dreadful statistic about disposable income, while the third (Bloomberg) misinterpreted its meaning.
The dire statistic is the year-over-year comparison of monthly disposable income, which took a deep dive in December, turning in the worst year-over year performance as seen here, in 40 years:
Coupled with evidence that consumers continued to spend in November and December without apparent concern, to the point where December's differential between changes in disposable income and spending was over 5 percent, this would seem to indicate serious trouble ahead for sustaining economic growth.
The AP's Martin Crutsinger (headline: "US consumer spending up 0.4 percent in December") and Lucia Mutikani at Reuters didn't mention the 2.7% decline, while Bloomberg's Katherine Peralta got its meaning wrong:
Disposable income, or the money left over after taxes, dropped 0.2 percent in December after adjusting for inflation from the prior month, the biggest decrease in 11 months. Over the past year, it decreased 2.7 percent, the largest year-to-year drop since November 1974, reflecting the impact of the expiration of the payroll tax break, the increase in some income taxes earlier in the year and weak wage gains.
Peralta seems to believe that the comparison involved is total 2013 disposable income compared to total 2012 disposable income. It isn't. The relevant table's description ("Real Disposable Personal Income and Real Personal Consumption Expenditures: Percent Change From Month One Year Ago") indicates that it's a comparison (seasonally adjusted) of December 2013 to December 2012.
Peralta's citation of the expired Social Security tax break goes out the window as a relevant factor, because it has been one all year long, and thus can't be why how a positive number in November went so negative in December.
Today's government report also makes December's employment report less questionable. The press had a hard time believing earlier this month that the economy only added 74,000 seasonally adjusted jobs in December compared to previous months which average about 200,000. Given what happened with personal income in December, it's possible that future reports will tell us that the 74,000 figure was too high and not too low.
Cross-posted at BizzyBlog.com.
