January 2013 Personal Income and Outlays, Retail Sales and Consumer Debt

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Bureau of Economic Analysis (BEA) data showed that personal income decreased $505.5 billion (3.6 percent) and disposable personal income (DPI) decreased $491.4 billion (4.0 percent) in January. Personal consumption expenditures (PCE) increased $18.2 billion (0.2 percent). Real (inflation-adjusted) DPI decreased 4.0 percent while real PCE increased 0.1 percent. 

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The BEA indicated that the January drop in DPI “mainly reflected the effect of special factors, which boosted employee contributions for government social insurance in January and which had boosted wages and salaries and personal dividends in December.  Excluding these special factors and others…DPI increased $37.6 billion, or 0.3 percent in January, after increasing $38.6 billion, or 0.3 percent, in December.” What the foregoing means in plain English is that those who could do so moved the timing of compensation (e.g., bonuses) forward in time to beat the imposition of new taxes that began with the new year. 

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The beginning-of-the-year tax hike apparently restrained consumer spending as well. The Census Bureau reported that consumers increased retail spending by a meager 0.1 percent (seasonally adjusted) during January as higher sales at general merchandise stores overcame the drag from other retailers. The increase can be attributed to seasonal adjustments, however, since -- on an unadjusted basis -- sales fell 18.4 percent between December and January, led (ironically) by general merchandise stores.

“Normally people reduce their savings when their tax rates go up,” said Steve Rick, senior economist at Credit Union National Association in Wisconsin. “It looks like consumers did drop their spending a bit. It may be signs of stress on lower and middle-income people. They don’t have much savings to begin with.” Another indicator suggesting consumers are stressed is Coupons.com’s Internet Coupon Index, which follows how frequently people view and print coupons and their redemption rate. “The index tends to run in a range,” Coupons.com CEO Steven Boal said. “In September, October and November 2007, it popped out of its range for the first time… And, for the first time since then, we are seeing a tripping out of the range.”

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Although January’s retail sales remained near their all-time high in nominal terms, adjusting the data to account for inflation and population growth shows that sales have yet to recover their November 2007 high; moreover, sales are only 1.4 percent above their January 2000 level. 

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Total consumer debt outstanding (CDO) rose by a seasonally adjusted $16.2 billion (+7.0 percent annualized) in January. Revolving (mostly credit card) debt increased by $0.1 billion (+0.1 percent annualized), while non-revolving debt (mainly student and auto loans) increased by $16.0 billion (+10.0 percent annualized)  the fifth-largest U.S. government consumer credit injection in history. Federal student loans comprised almost 89 percent of January’s increase in non-revolving debt. 

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In the past 12 months, of the $153 billion in total consumer credit increase, just $6.4 billion was in revolving credit. The balance: student and car loans.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.