Implications: Today's report on personal income and spending shows inflation, but not stagflation. Despite substantially higher gas prices, "real" (inflation-adjusted) consumer spending expanded at a 2% annual rate in March and at a nearly 7% annual rate including upward revisions to prior months. In the first three months of the year, real spending is up at a healthy 3.1% annual rate. Meanwhile, nominal consumer spending is accelerating: up 4.6% versus last year but up at a 7.9% annual rate in the past three months. Certainly, inflation is a growing problem: overall consumption prices are up at a 4.7% annual rate in the past three months. Our point is that, so far, the economy is clearly weathering the oil-price storm. Much of that is due to higher private-sector earnings, where wages, salaries and small business profits are up 5.6% versus a year ago. In addition, consumer balance sheets are healthier and financial obligations (monthly payments like mortgages, rent, car loans/leases, as well as other debt service) are the smallest share of disposable income since 1995.
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Posted on Friday, April 29, 2011 @ 9:48 AM
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