Personal Consumption Expenditures Flat

From the WSJ:

In the latest worrisome signs for the economy, consumer spending stalled in January, after adjusting for rising prices, and income growth slowed.

The Commerce Department said personal spending rose 0.4%, but was unchanged after adjusting for inflation. Such spending was also flat in December and October.

"Households limped into 2008 reeling from higher energy costs, falling home values, less credit availability and weakening employment," said Bank of America senior economist Peter Kretzmer in a note to clients.

.....

The price index for personal consumption expenditures, an inflation gauge watched closely by Federal Reserve policymakers, rose 0.4% in January from the previous month and was up 3.7% from a year ago. Excluding food and energy, prices rose 0.3% and increased 2.2% from January 2007 -- above the Fed's preferred range of 1.5% to 2%.

As IBD stated:

"People are spending all they earn and more just to keep up with inflation," said Joel Naroff, chief economist at Naroff Economic Advisors. "When you adjust for inflation, all that households did was run in place."

Above is a chart from Econoday of real disposable personal income -- income adjusted for inflation. Notice it has been trending down for the last 6 months on a year over year basis.



Above is a chart of real personal consumption expenditures -- consumption adjusted for inflation. Notice it too has been decreasing for the last 4-6 months and is not negative on a year over year basis.



The above chart -- also from Econoday -- shows the University of Michigan consumer sentiment indicator. Notice this indicator has been dropping for the better part of the last year. Dropping income contributes to lower consumer sentiment.

So -- 70% of the economy is clearly slowing. That does not bode well for overall economic growth.