Inflation cuts down much of personal income and spending

Pay even more to get even less. Exactly what American consumers need most in these tough times.

By Wolf Richter for WOLF STREET.

So we have a small situation here. We have a slight rise in inflation, I mean the worst spike in inflation in three decades, and now total personal income from all sources, including free money stimuli from heaven, which is fading away, increased 0.5% in April compared to April a year ago; but corrected for inflation, “real personal income” fell 3.0% year-on-year, according to the Bureau of Economic Analysis on Friday.

On a month-to-month basis, and unadjusted for inflation, personal income from all sources plunged 13% in April from March to a seasonally adjusted annual rate of $ 21.2 trillion – after climbing 21% in March for a historic WTF moment fueled by stimuli. Each of the three waves of stimuli triggered a glorious overtaking. So in the future, most of these stimuli have been received and accounted for.

I have shown the 0.5% year-over-year increase in total personal income from all sources, unadjusted for inflation, with the green line sloping upward. In a moment, we’ll see what that inflation-adjusted green line looks like.

Personal income from wages and salaries alone, unadjusted for inflation, rose 1.0% in April from March and is likely to rise again in May, as more consumers reenter the consumer market. work and employers will raise wages to bring these people back to the job market, in what is one of the strangest job markets of all time, with record job openings, while that 16 million people are still claiming state or federal unemployment compensation.

But then there is inflation, and therefore the erosion of the purchasing power of “real” personal income. Total “real” personal income from all sources – corrected for inflation and expressed in chained 2012 dollars – according to the Economic Analysis Office, was down 3.0% year-on-year – hence the downward green line:

Yes, inflation – the declining purchasing power of the dollar, and therefore the declining purchasing power of labor – is exactly what the American consumer needs most in these difficult times.

Nonetheless, American consumers have given their all to support the global economy. In March, consumer spending on durable and non-durable goods had spiked stimulus-induced WTF of historic proportions, triggering record trade deficits as many of these goods or their components and materials are imported. But spending on services was still lagging behind.

In April, some consumers were still receiving and spending their stimuli, and other consumers were spending the stimuli they received in March, and overall spending in April held close to the WTF level in March. But what we are also seeing now is the impact of inflation.

March and April were the first two consecutive months in three decades that large-scale inflation appeared in the data. So it’s time to see how it worked.

“Real” spending on durable goods fell 0.9% in April from March. But uncorrected for inflation, it increased by 0.5%. This includes mega price increases for used and new vehicles.

‘Real’ spending on non-durable goods fell 1.6% in April from March. Unadjusted for inflation, it fell 1.3%.

“Real” spending on services increased 0.6% in April from March. But uncorrected for inflation, it increased by 1.1%. While spending on goods has reached all-time highs, spending on services – from airline tickets and hotel reservations to rentals – has lagged behind. In April, actual spending on services was at about the same level as at the end of 2017.

In total, ‘real’ consumer spending on all goods and services fell 0.1%, but not corrected for inflation, it increased by 0.5%. You get the drift. Consumers spent even more money to get even less:

Everyone now has their own list of products and services that have suddenly become much more expensive, or have stayed the same in price, but the products have gotten smaller or the quality has gone down, or a combination. Savvy consumers have been reporting it for months, but in March and April it started to show up in the data in earnest.

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