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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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From: redfrecknj5/31/2006 6:53:00 AM
   of 110194
 
from Taylor at Dismally:

Real PCE grinding to a screeching halt.

The two most important indicators that I follow are personal income and real personal consumption expenditures (PCE). From my chair, this is where everything starts. Consumers get income... and then go out and blow it. This is what starts the economic drive. So, let's see where we are.

Personal income increased for the month. However, the rate of growth when compared to last year's quarter is continually showing a decline. The decline increased quite a bit this month, despite what some are calling a good number. Who cares about the actual number. What I focus on is the rate of growth comparatively. When this chart points downward, just about every other chart I compare to it points down as well. This makes sense because if consumers spend less, the economy functions at a slower rate. Here's the income chart:



We've been declining for some time. This month's data just solidifies this a bit more. We're not in a terrible situation, but certainly a declining situation. The last spike up you see is from December of 2004. That's over a year of lower numbers.

Here's the consumption chart... and here's where it starts to get ugly:



Remember... EVERY. SINGLE. CHART. I use will be compared to this chart. Real PCE is the consumption rate (adjusted for inflation). Whatever consumers are earning in personal income, this is what they ultimately do with it: Spend it. Regrettably (for the economy), they are spending at a lower rate. Factor in a savings rate that went from -1.4% down to -1.6%, and you can see a more dire situation. When you have the drop that we just got from this month, you're looking at an economy that is declining sharply. People are earning less and spending less. And with that, you'll see a dollar that will have less value as well as a stock market that is likely to continue its recent decline.
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