1953 Employment and Wages

The recession that started mid-year was (obviously) a very negative development for employment.

However, the unemployment rate didn't start moving higher until the fourth quarter, with a big spike in both November and December.

The big reason for the drop is the huge cratering of goods-producing jobs, which declined by more than 700,000 over the course of the year.

Service producing industries followed s somewhat different trajectory.  First, we see increases from January until October, but a pretty sharp drop in November and December.

And overall, we see a drop in government employment, largely as a result of the drop in defense spending related to the Korean war cease-fire.

As a result of the weakening employment picture, real DPI took a hit.

On a continuously compounded annual rate of change basis, real DPI contracted in the third and fourth quarter of 1953

Which we all see in absolute values above.

Below are the graphs from the Economic Report to the President

1951 PCEs, Income and Savings

The above chart shows PCEs contribution of overall economic growth during 1951 and the contributions of each sub-part of PCEs to overall PCE growth.  The first quarter saw a tremendous surge as consumers anticipated shortages caused by the Korean war effort.  In essence, these purchases pulled purchases ahead to the first quarter, which explains the huge drop-off in purchases during the second quarter.  During quarters three and four we see a return to more normal contributions of overall growth.

Let's look at these figures from a few other perspectives:

PCEs grew at a strong seasonally adjusted annual rate in the first quarter, contracted in the second quarter and returned to more normal rates of growth in the third and fourth quarter.

Or, the year over year percentage change was sharply higher in the first quarter, but leveled off in the second through fourth quarter.

A big part of the fuel for the PCE growth came from the increase in real disposable personal income.  The above chart shows that this increased every quarter in 1951, and increased at a very strong rate in the second quarter and a decent rate in the third quarter.

 The real YOY increase in DPI was also very strong, indicating the increases were consistent.

The charts above are from the Economic Report to the President in 1952,  The top figure shows income and its sources and the second shows average hourly and weekly manufacturing wages.  The top figure shows a large jump in savings in the latter part of the year, as consumers slowed their pace of consumption.  As the second chart shows, inflation took a big bite out of wage growth for manufacturing employment during the year.

The above chart shows the importance to durable goods purchases to consumer spending during 1951.  It also shows the incredible level of pent-up demand that was unleashed on the economy in the post-WWII years.

1950: Employment and Income

1950 was a very good year for employment.  Consider the following charts:

The unemployment rate dropped over 2% - moving from 6.5% to a little over 4% by the end of the years.  And the employment growth was split between manufacturing and employment:

Manufacturing employment increased over 2 million while

service sector growth increased over 1 million.

Government employment also increase about about 400,000.

As a result of this activity, we see real disposable personal income increase on a YOY basis of over 9%.

Below are some charts on wages and savings from the 1951 Economic Report to the President that show the above information, but in 1950s econ style.

Personal Income Pt. II

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Real PCEs have been bouncing around quite a bit over the last 7 months. But notice that for 6 of those months they have been clustering between $8.167 trillion and $8.211 trillion. This is what I saw when I wrote an article titled "are retail sales bottoming" several weeks ago.


After a spike up in January, real durable goods purchases have been decreasing for three months. That is a clear downward trend. However, note that sales are still above their fourth quarter lows.
Real non-durables are also moving lower. But

Real service expenditures are moving higher.

Here are two charts from econoday that better show my thinking.


Notice there are two boxes. The first occurred at the end of last year and shows a massive month over month percentage change. However the severity of the month over month change is decreasing for the last few months. In addition, the year over year number has been bouncing around on a bottom since the beginning of the year.


Real DPI is increasing.

Personal Income Pt. I

Yesterday the BEA released personal income information. In part 1 I'll look at the charts from the income portion. In part II I'll look at the expenditures.

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The general trend for compensation is down.
Employee compensation is down as well, as are

wages and
Personal income and receipts from assets. The only sub-part of income increasing over the last 7 months is
Transfer payments.

Personal Income

Yesterday the BEA released personal income and spending information:

Personal income decreased $34.4 billion, or 0.3 percent, and disposable personal income (DPI) decreased $1.8 billion, or less than 0.1 percent, in March, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $24.2 billion, or 0.2 percent. In February, personal income decreased $24.3 billion, or 0.2 percent, DPI increased $0.2 billion, or less than 0.1 percent, and PCE increased $39.1 billion, or 0.4 percent, based on revised estimates.

Let's break this information down over a few posts. Click on all images for a larger image:


Total personal income -- which is a macro level statistic -- has been decreasing since October.

A big reason why is a decrease in wage and salary disbursements.

Yet, disposable personal income increased in January, February and March giving the US consumer more to spend. Why?
First there was an increase in transfer payments.

Secondly, there was a decrease in personal current taxes.

So -- What Are People Buying These Days?

Last Friday the BEA released the personal income and expenditure report. I wanted to dig a bit deeper into the data to see what it says.

First, here is a graph of total personal consumption expenditures:



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Note that this statistic has been neutral for the June - August period and it ticked down in the August to September period. In other words, the slowdown started about 4 months ago when people started to spend a bit less on things.

The report breaks expenditures down into durables goods expenditures, non-durable goods expenditures and service expenditures.



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Service expenditures continue to tick up.



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Non-durable goods rose until July but have retreated for the last two months. Remember -- these are goods that will last less than three years.



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Durables goods numbers have been decimated over the last 7 months. Let's also assume that durable goods purchases are a proxy for consumer confidence. Durable goods last more than three years. Therefore, there is a higher probability a consumer will purchase these goods on credit. With credit and the job market contracting there is little reason for consumers to get into a long-term financing arrangement right now.

In other words, consumers aren't that confident right now.

Personal Spending Flat

From marketwatch:

U.S. consumer spending was flat in February after adjusting for inflation, the third consecutive month of weak consumer demand, the Commerce Department reported Friday.

Real consumer spending has risen less than 0.1% seasonally adjusted since November, a clear sign that the main engine of U.S. economic growth is stalling as job growth wanes and house prices tumble.

Real consumer spending is on track to rise 0.8% annualized for the first quarter, economists said. "The plunging confidence numbers clearly point to an outright decline in the second quarter," wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics.

Let's look at some pertinent charts



The real year over year change in disposable income has been dropping for a while now and is now lower at pretty dangerous levels.



Year over year change in consumption expenditures are also dropping.





Consumer confidence and sentiment are dropping as well.

For an economy the depends on consumer spending, these are not good developments.

Personal Consumption Expenditures Up .2%

From the AP:

Consumers, battered by a slumping housing market and a credit crunch, slowed the growth in spending to the smallest amount in four months.

The Commerce Department reported Friday that consumer spending edged up 0.2 percent in October, the weakest showing since a similar increase in June. Individual incomes grew by just 0.2 percent last month, the poorest showing in six months.

From the BEA:

Personal income increased $21.2 billion, or 0.2 percent, and disposable personal income (DPI) increased $14.0 billion, or 0.1 percent, in October, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $23.8 billion, or 0.2 percent. In September, personal income increased $50.4 billion, or 0.4 percent, DPI increased $43.2 billion, or 0.4 percent, and PCE increased $33.0 billion, or 0.3 percent, based on revised estimates.

Here's a graph of the last six months of increases.



The light blue line is total expenditures. Notice it has declined for the last three months. Also notice there is very little difference between July and August. In effect, we've had four months of problems with this number.

Also notice how the durable goods numbers is jumping around quite a bit. May's number was followed by two months of contraction. August's jump was followed by September's weaker performance and last months decline. Some of this is to be expected; durable goods are goods that last a long time and are therefore more expensive. As a result, cash outlays for them are probably more prone to these types of jumps.

However, I have speculated that durable goods numbers are indicative of consumer sentiment. Because durable goods are more expensive, they are typically more expensive and therefore require financing. As a result, a durable goods order purchase means a financial commitment that requires confidence on the purchaser's part that they can continue to make payments. If a purchaser doesn't think he can make payments over an extended period of time, he is less likely to buy the item. Assuming my statement is correct -- the durable goods purchases are an indication of consumer confidence -- than this number should raise some eyebrows.

Consumer Spending Slowing, Core Inflation Tame

From Bloomberg:

Consumer spending in the U.S. increased in June at the slowest pace in nine months as near- record gasoline prices and falling home values forced Americans to cut back.

The 0.1 percent rise in spending followed a 0.6 percent increase in May, the Commerce Department said today in Washington. The increase matched the median forecast of economists surveyed by Bloomberg News. The Federal Reserve's preferred measure of inflation rose less than forecast.

Consumer spending, which accounts for more than two-thirds of the economy, will cede its role as a mainstay of the expansion as increases in exports and business investment propel a rebound in manufacturing. At the same time, more jobs and rising incomes will prevent spending from slowing even more, economists said.

From CBS:

Core consumer inflation increased 0.1% for the fourth consecutive month in June, pushing the yearly gain in core inflation down to the lowest level in three years, the Commerce Department said Tuesday.

The core personal consumption price index rose 1.9% in the past year, the lowest inflation since early 2004, and just within the Federal Reserve's unofficial comfort zone of 1% to 2% for core inflation. Core inflation excludes volatile food and energy prices. Read the full government report.

Overall inflation also increased 0.1% in June, the lowest monthly inflation since November. Overall inflation is up 2.3% in the past year.

Expect to start hearing more talk about a Fed rate cut because of these inflation numbers. I still don't think that is a possibility right now. The Fed is still focusing on inflation and monitoring all incoming data.

There are two charts that are really important from this report. The first is the total dollar amount of personal consumption expenditures at seasonally adjusted annual rates. The amounts are expressed in 2000 chained dollars. Notice they have pretty much stagnated over the last 5 months.



Here is the month-to-month percentage change in chained 2000 dollar PCEs. Notice how these numbers are also slowing.



Consumer spending grew 1.5% in the last GDP report. If we continue to see these kind of numbers, don't expect an increase in the near future.