Personal incomes rose more than expected in December and consumer spending increased for the third straight month, helping the economy slowly recover from the worst recession in decades.
Today's personal income (PI) trend, in terms of both velocity and acceleration, look extremely tame in comparison to the 1930's Great Depression.
Long Term Personal Income Trend:
I warn you not be lulled into a state of apathy by the illusion of statistics. Personal income, like most government statistics, has been altered many times. These alteration are called data revisions.
As a rule, data revisions tend alter the present relative to the past. In other words, the revisions alter the calculation of the data - usually no more than 5 years. Thus, data revisions tend to adjust the front end, either up or down, without change to the back end. The bias of altering the present relative to the past is one of the core drivers of economic spin or MOPE.
For example, the last data revision to PI occurred around 2007. It came at a time when the series began displaying a sharp deceleration. The statisticians simply revised the data from 2004 and turned red into black without much fanfair - except for a quick note to Jim from me on jsmineset.com.
Personal Savings As A $ of Personal Income: Before and After Data Revision from 2004:
Consumption relative to income, as illustrated by the Real Funding Pool chart, remains historically distorted. Savings and investment, not consumption, will fund the next expansion. As savings builds, it must come at the expense of consumption. Unfortunately, nearly 70% of GDP comes from consumption. If Americans are encouraged to consume less and save more, GDP would decline without significant increases investment, government consumption, and/or net exports. You don't see many elections won on the platform of declining GDP, so don't expect many policies to encourage savings over consumption.
Personal Consumption As A % of Personal Income or "Real Funding Pool":
Source: finance.yahoo.com
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