The data this month showed good income growth with spending growth weak (significant downward revision in last month’s expenditure data). Still year-over-year consumption is growing faster than income.

The market looks at current values (not real inflation adjusted) and was expecting (from Bloomberg):.

  Consensus Range Consensus Actual Personal Income – M/M change -0.1 % to 0.3 % 0.1 % +0.2 % Consumer Spending – M/M change -0.2 % to 0.3 % 0.1 % +0.1 % PCE Price Index — M/M change -0.1 % to 0.0 % -0.1 % – 0.1 % Core PCE price index – M/M change 0.2 % to 0.2 % 0.2 % + 0.1 %

The monthly fluctuations are confusing. Looking at the inflation adjusted 3 month trend rate of growth, disposable income growth trend is up and consumption is down.

Real Disposable Personal Income is up 2.7 % year-over-year (2.6 % last month), and real consumption expenditures is up 2.8 % year-over-year (2.6 % last month)

this data is very noisy and as usual includes moderate backward revision (detailed below) – this month the changes changed the year-over-year trends.

The third estimate of 4Q2014 GDP indicated the economy was expanding at 1.4 % (quarter-over-quarter compounded). Expenditures are counted in GDP, and income is ignored as GDP measures the spending side of the economy. However, over periods of time – income and expenditure must grow at the same rate.

The savings rate continues to be low historically, improved this month.

The inflation adjusted income and consumption are “chained”, and headline GDP is inflation adjusted. This means the impact to GDP is best understood by looking at the chained numbers. Econintersect believes year-over-year trends are very revealing in understanding economic dynamics.

Per capita inflation adjusted expenditure has exceeded the pre-recession peak.