The Personal Income and Outlays release from the BEA provided mostly encouraging data.
Despite government yanking the e-brake on spending, personal income and spending are robust. Personal Consumption Expenditures have actually
gained momentum nearly every month for the past year, and it’s presently running at just shy of 5% y/y growth:
Real Personal Consumption Expenditures have sagged, with inflation taking a bite out of growth:
Despite this, it is still within the non-recession historical norm of the past decade.
Several key elements of yesterday’s release are particularly encouraging to the employment situation. We will examine the growth of Personal Current Transfer Receipts first:
We are near post-recession lows, and in fact below the pre-bust levels. At the same time, Personal Current Taxes are +15.2% y/y, and
accelerating in growth:
Personal current taxes also have very strong seasonal adjustment, and the adjusted series is very sensitive to weakness or strength, as evidenced by the spikes around changes in trend.
The numbers themselves imply perhaps at least thrice the growth rate in payrolls presently reported. While this number may be unlikely, the very strong number suggests that payroll growth may be understated. Even meeting in the middle at the implication of 2% payroll growth suggests 1.7 million extra jobs. Combining layoff data being at the lowest levels in series history (including pre-recession) with the very strong increase in income, we think the productivity push is nearing an end, and aggregate sales will be aggressively targeted to meet rising demand – even at thinner margins.
This means more jobs, and higher job-growth in the 2nd half of 2011.
In the meantime, for the earnings season in July (83% of the S&P 500 by market cap report between July 18th and August 1st), productivity gains from 2Q labour slack may benefit earnings.
