Three Little Numbers

I try to avoid making a big story out of one month's numbers, but when those numbers are indicative of a clear, underlying trend, it's legit to take a closer look.

Such is the case with the release this morning of income and spending numbers for June.

The figure below shows the monthly change in three numbers. The first number is -0.2%. That's the decline in consumer spending in June, the first such decline in two years, i.e., since the official recession.

Source: BEA

The second number is zero. That's the change in spending once you factor in inflation.

Now, you will notice that usually, adjusting for inflation makes growth numbers smaller, as nominal growth minus price growth equals real growth.

But what if inflation is negative, which as you see in the third bar, it was in June?

So, in June we enjoyed declines in both consumer spending and consumer prices. Again, it's just one month's data, but it's consistent with the extremely weak demand story we've seen in many other reports. It also helps explain June's lousy jobs report.

And remember, we just learned the other day that real consumer spending was flat in the second quarter, so June wasn't a quarterly outlier.

Prices are not, however, in decline on a year-over-year basis, which is a better way to look at them. The spending price deflator is up 2.6% over the past year, but take out food and energy, as you should to get a more accurate measure of price pressures, and it's 1.3%. Not deflation, for sure, but indicative of the underlying weakness we see in June's data.

This is an economy in serious need of help, and the debt deal doesn't help. That is, unless in clears the decks for some actual policy-making to give this economy a nudge forward before it topples over.

This post originally appeared at Jared Bernstein's On The Economy blog.