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Bureau of Economic
Analysis (BEA) data showed that personal
income increased $30.9 billion (0.2 percent) and disposable personal income
(DPI) increased $20.7 billion (0.2 percent) in March. Personal consumption
expenditures (PCE) increased $21.0 billion (0.2 percent). Real
(inflation-adjusted) DPI increased 0.3 percent while real PCE increased 0.3
percent.
Most
analysts we follow found the report unremarkable (see this and this). The
increase in spending, although the smallest gain in three months, exceeded expectations
of 0.1 percent. The realization that consumers were more cautious spenders in
March, and income growth also softened, reinforced the impression the U.S.
ZeroHedge
noted an anomaly in the DPI and PCE data: “Spending on total goods (including
durables, already known as being quite abysmal, and non-durable), dropped by
$32.8 billion in nominal dollars. What was the offset? Why a massive surge in
consumption expenditures on services[; spending on services] rose by $53.8
billion, which -- absent the spending aberration for September 11,
2001 (reversed the following
month) -- was the biggest monthly increase on record! What drove this record
services spending spree is anyone's guess.”
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DPI
growth peaked in February 2011 (we ignore December 2012 as an aberration), but
PCE continued upward for another five months before it, too, rolled over.
Although the rising trend in nominal personal income is apparently still
in place, real per-capita income has stagnated well below the recessionary
peak.
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Total
consumer debt
outstanding (CDO ) rose by a seasonally adjusted $8.0 billion (+3.4 percent
annualized) in March; expectations
were for a $15.6 billion increase. Revolving (mostly credit card) debt declined
by $1.7 billion (-2.4 percent annualized) -- the biggest drop since December; however,
non-revolving debt increased by $9.7 billion (+5.9 percent annualized).
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In
March, the total non-seasonally adjusted change in non-revolving debt amounted
to $4.9 billion relative to February. Federal student loans grew during the
month by $3.9 billion, or 79 percent of the change in that category. Relative
to March 2012, federal student loans contributed 70 percent of the total growth
in consumer credit outstanding.
The
incredible expansion of student loan debt may be reaching its limits as default
rates soar. According to the Wall
Street Journal (article in the clear here),
“Sallie Mae, the nation's largest non-government student lender just cancelled
a $225 million debt offering as investors decided they simply were not getting
paid enough for risk -- amid rising student loan defaults.”
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.
