Consumers Spend More & Save Less

The Bureau for Economic Analysis released the numbers for January pertaining personal income, disposable personal income (DPI), and personal consumption expenditure (PCE).  Personal income increased .1% in current dollars  since December, while disposable personal income decreased .4% in current dollars (.6% in 2005 real dollars).  The discrepancy arose from the increase in federal nonwithheld income taxes.  Personal current taxes rose by $59 billion and disposable income only rose by $11 billion - resulting in a decline of disposable income of $48 billion or .4%.  The tax increase is an annual adjustment, which gave us the large month over month change.

Personal consumption expenditure increased .5% in current dollars (.3% in 2005 real dollars).  For expenditure to increase when disposable income increases means consumers dipped into their savings to fund their purchases.  Personal savings declined $101 billions dollars from December and the savings rate declined from 4.2% of income to 3.3% - but still remained positive (meaning credit didn’t play a huge part in the expenditures).

Is the consumer more confident to be spending more when they’re receiving less?  Maybe, maybe not.  The 5% increase in consumer expenditure was made up of 99% nondurable goods and services.  In other words, the consumer wasn’t out buying the giant flat screen TV or new Cadillac.

Manufacturing Employment Increases - For Good?

The Institute for Supply Management released the manufacturing report for last month and manufacturing employment numbers rose once again.  The manufacturing employment index rose from 53.3 to 56.1 in February.  Any number above 50 indicates growth, the larger the number above 50, the faster the growth.  Is the employment growth due to temporary workers or actual permanent workers?  My hunch is for the former.  Looking at the customer inventories index, the index which measures the respondents (manufacturing firms surveyed) belief on the optimal size of their customer’s inventories, manufactures believe their customer’s inventories have room to grow.  The index did rise from 32 to 37, but is still well below 50.  The demand created by the room to grow can be met with temporary manufacturing workers, but is unlikely to be sustained by permanent workers.  As inventory demand returns to normal there will no longer be the need to play “catch up” and the extra labor will not be needed.  A complete breakdown of the report is given below or can be found at the ISM’s website.

Kohn Steps Down

Donald Kohn the Vice Chairman of the Federal Reserve made it known today he is stepping down in June after 40 years of service.  His departure will leave three spots open on the board of seven giving President Obama ample opportunity to select appointees who follow his philosophies.  I wonder if that makes Kohn happy?