{"id":1674,"date":"2020-02-28T10:31:01","date_gmt":"2020-02-28T15:31:01","guid":{"rendered":"https:\/\/naroffeconomics.com\/?p=1674"},"modified":"2020-02-28T10:31:01","modified_gmt":"2020-02-28T15:31:01","slug":"january-income-and-consumption","status":"publish","type":"post","link":"https:\/\/naroffeconomics.com\/?p=1674","title":{"rendered":"January Income and Consumption"},"content":{"rendered":"\n

KEY DATA:<\/strong>  Income: +0.6%; Spending: +0.2%; Prices: +0.1% <\/p>\n\n\n\n

IN A\nNUTSHELL:<\/strong>  \u201cHouseholds have money to spend, but with all\nthat is happening, it is not clear they will spend it.\u201d<\/em><\/strong><\/p>\n\n\n\n

WHAT IT\nMEANS:<\/strong>  The key to keeping the economy going is the\nreaction of households to all that is swirling around them.  It is not clear what people will do.  They have the money to spend, <\/em><\/strong>but for\nhow long is the issue. Personal Income rose solidly in January.<\/em><\/strong>  But the details are a little\nquestionable.  Wage and salary increases early\nin the year have been driven by increases in the minimum wage and while that is\nstill happening, the gains are slowing down.<\/em><\/strong>  Thus, worker compensation did rise decently\nin January, but much less than it did in January 2019.  The biggest increase was in government\ntransfer payments<\/em><\/strong>, especially for Social Security.  So, while the increase in income was large, it\nmay have been only temporary.<\/em><\/strong>  In\n2019, there was a surge in personal income but that faded as the first half of\nthe year wore on.  I suspect the same\nwill happen this year.  <\/p>\n\n\n\n

As for consumer spending, it was moderate, at\nbest.  Most of it came from a jump in\ndurable goods demand \u2013 mostly vehicle sales. \nThe motor vehicle selling rate is trending down, though in a saw tooth\npattern.  <\/em><\/strong>Thus, you get some ups even\nas demand fades.  When adjusted for inflation,\nwhich low, consumption rose modestly.<\/em><\/strong> \nIndeed, we have started the quarter off growing at a 1% pace.  If the issues with the coronavirus and the\nmarkets affect consumer spending, we could see a very weak first quarter\nconsumption number.   <\/p>\n\n\n\n

MARKETS AND\nFED POLICY IMPLICATIONS:<\/strong>  In\nthe midst of the stock market chaos\/ panic, it is worthwhile to step back and\nask the question whether the huge selloff makes sense.  If you look at it in the short term, the\nanswer is yes.<\/em><\/strong>  The world economy\nis slowing and in many ways is shutting down. \nThus, some sectors are being clobbered because demand is just not going\nto be there anytime soon.  There is also\nthe reality that it is likely to take some time, even when the all clear is\ngiven, for activity to ramp back up.  And\nsince\nwe have no idea how long before the epidemic is stabilized and dealt with and\nhow long the process of returning to normal production and demand takes, the\nuncertainty has to factor greatly into pricing. \n<\/em><\/strong><\/p>\n\n\n\n

But this situation is vastly different from the\ncrash created by the financial crisis.<\/em><\/strong>  Then,\nthere were real economic factors that drove the downturn.  The effects of a housing bubble bursting and\nfinancial system financial collapsing don\u2019t disappear quickly.<\/em><\/strong>  In contrast, there is every reason to\nbelieve that travel and trade can be restored in a much shorter time once the\nrestraints to activity are removed. <\/em><\/strong> That is, the slowdown can be much more\nreadily overcome.<\/em><\/strong>  Airlines will\nbe flying again, manufacturers will be getting their supplies again, people\nwill be interacting again, China will reopen and optimism will return.  It is just that we don\u2019t know how long that\nwill take.  And that means the markets\nwill have problems pricing in the value of stocks, at least if you factor in\nearnings just for 2020. <\/em><\/strong> For\ninvestors, the question is whether they are traders who are in it just for the\nshort-term or are they investors.  We\ndon\u2019t know the bottom but we know that economic issues created by a virus are\nreversible. The Great Recession was long and deep and the recovery long and slow\nbecause there was so much damage to fundamental sectors of the economy.  This time is different and it is likely that\nthe recovery will be swifter and stronger. \nBut getting to the bottom could be a very painful process.  <\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

KEY DATA:  Income: +0.6%; Spending: +0.2%; Prices: +0.1% IN A NUTSHELL:  \u201cHouseholds have money to spend, but with all that is happening, it is not clear they will spend it.\u201d WHAT IT MEANS:  The key to keeping the economy going is the reaction of households to all that is swirling around them.  It is not … Continue reading January Income and Consumption<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-1674","post","type-post","status-publish","format-standard","hentry","category-economic-indicators"],"_links":{"self":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1674","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1674"}],"version-history":[{"count":1,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1674\/revisions"}],"predecessor-version":[{"id":1675,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1674\/revisions\/1675"}],"wp:attachment":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1674"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1674"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1674"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}