Real personal income and spending both decline in December; no imminent worry but evidence of softening
Nominal personal income rose 0.3% in December, while spending declined -0.6%. In real terms after inflation, personal income declined -0.1%, and personal consumption expenditures declined -1.0%. Nevertheless, both remain well above their pre-pandemic levels:
Here is what the same information looks like using May 2021 as a baseline, after all the stimulus money had been expended:
Since then spending is up 0.9%, while income has declined -1.1%.
Comparing real personal consumption expenditures with real retail sales for December (essentially, both sides of the consumption coin) reveals both faltered for the second month in a row:
Because so many people front-loaded their Christmas spending into October, the subsequent decline is not too concerning. On the other hand, the quarterly graph below shows that real personal income declined in each of the last three quarters of 2021. I think this decline (along with COVID) explains most of the decline in the approval for Joe Biden and Congressional Democrats in general:
I have been expecting the economy to soften (although no recession at least through the middle of this year), and this morning’s income and spending data add to the evidence.