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August 20, 2018 | Amazing Revisions and Alleged Thrifty Consumers

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
In its latest report, the BEA revised spending down and income up. As a result, the savings rate rose.

On the eve of the last two recessions, American households were unprepared. Years of appreciating stock portfolios, rising home values and improving job prospects had convinced consumers that they didn’t need to save much of their income.

So when unemployment rose and asset prices fell in the downturns that started in 2001 and in 2007, consumers drastically reined in spending and the economy contracted.

Until a few weeks ago, some economists feared history was in the process of repeating itself. Official numbers suggested saving was again out of style as the current expansion enters its 10th year.

Recent data has altered the picture. Households have been saving significantly more of their after-tax income for several years, according to revised data released last month by the Bureau of Economic Analysis.

Take just the first quarter of this year: The agency more than doubled its estimate of the personal saving rate–the difference between disposable income and spending—to 7.2% from the 3.3% estimated previously.

The new number exceeds the 6.4% average rate recorded since 1990, and is almost three times the most recent low of 2.5% in 2005.

The first-quarter changes alone amounted to $613.5 billion in additional saving, at an annual rate, recovered from between the statistical couch cushions—enough money to buy more than 20 million Ford F-150 pickup trucks or more than 600 million iPhone Xs.

While slight adjustments to economic data are common, the revision to the personal saving rate was the biggest since at least 2002.

“That was an amazing set of revisions,” said economist Joel Naroff, who until recently thought consumers were “largely tapped out” and represented a major risk to the economic outlook. Now, he says, the picture is “a lot less negative.”

Revision Story

Let’s tune into the BEA’s Comprehensive Update: 1929 Through May 2018 report to see what happened.

Personal income was revised up $107.4 billion, or 0.8 percent in 2013; $173.6 billion, or 1.2 percent in 2014; $166.6 billion, or 1.1 percent in 2015; $196.4 billion, or 1.2 percent in 2016; and $401.9 billion, or 2.4 percent in 2017.

That’s an amazing $1.0459 trillion revision.

By Year

  • For 2013, the revision to personal income primarily reflected a $118.3 billion upward revision to nonfarm proprietors’ income.
  • For 2014, the revision to personal income primarily reflected a $129.9 billion upward revision to nonfarm proprietors’ income and a $44.5 billion revision to personal interest income.
  • For 2015, the revision to personal income primarily reflected a $100.4 billion upward revision to nonfarm proprietors’ income and a $70.8 billion revision to personal interest income.
  • For 2016, the revision to personal income primarily reflected a $113.2 billion revision to personal dividend income and a $83.1 billion revision to nonfarm proprietors’ income.
  • For 2017, the revision to personal income primarily reflected a $143.3 billion revision to personal dividend income, a $111.2 billion revision to nonfarm proprietors’ income, a $100.6 billion revision to wages and salaries, and a $45.9 billion revision to personal interest income.

Who Got Da Money?

  • Proprietors Income: $542.9 Billion
  • Dividend Income: $256.5 Billion
  • Interest Income: $161.2 Billion
  • Wages and Salaries: 100.6 Billion

Curiously, that adds up to $1.0612 trillion so there are some small losses elsewhere.

Median Person Q&A

  1. Does the median person benefit from Proprietors Income? No
  2. Does the median person benefit from Dividend Income? No
  3. Does the median person benefit from Interest Income? Perhaps to a small degree
  4. Does the median person benefit from Wages and Salaries? Yes, but the bulk of income gains went to the high end

Assuming about 25% of the wage and salary benefit and 15% of interest income went to the bottom half, the bottom half got about $49 billion.

I will take a stab that the median household benefit of that $1+ trillion adjustment was in the range of $40 to $80 billion.

Revolving Debt

During the same period as the ballyhooed revisions, revolving debt alone rose by $191 billion.

It is difficult to know the distribution of that debt, but it is the bottom 50% that carries credit card debt every month.

Weather the Next Recession Storm?

This recovery primarily benefited those with assets. The median person does not rent houses or get dividend income.

The “average” person may be better off than in 2013 but the “median” person is likely worse off.

And are these revisions accurate in the first place?

Mike “Mish” Shedlock​

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August 20th, 2018

Posted In: Mish Talk

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