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 little 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 the fading sky, rose 0.5% in April. compared to April a year ago; but adjusted for inflation, “real personal income” fell 3.0% year over 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 declining climbed 21% in March for a historic WTF moment fueled by stimulus. Each of the three waves of stimuli triggered a glorious overtaking. So, in the future, most of these stimuli have been received and taken into account.
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 only, unadjusted for inflation, rose 1.0% in April, from March, and is likely to rise further in May, as more consumers re-enter the workforce. and that employers will increase wages to bring these people back. in the job market, in what is one of the strangest job markets of all time, with record vacancies, while 16 million people still claim federal 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 – adjusted for inflation and expressed in chained 2012 dollars – based on Economic Analysis Office, fell 3.0% year over year – hence the downward sloping 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 done their best to support the global economy. In March, consumer spending on both durable and non-durable goods had spiked stimulus-driven WTF at 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 still had their stimuli and spent them, and other consumers were spending the stimuli they received in March, and overall spending in April remained near the WTF level in March. But what we are seeing now is also the impact of inflation.
March and April were the first two consecutive months in three decades in which 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 new and used 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 historic highs, spending on services – from airline tickets to hotel reservations to rentals – has lagged behind. In April, actual spending on services was roughly where it was 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 the price of which has remained the same, but the products have become smaller or the quality has been lowered, or a combination. Savvy consumers have been reporting this for months, but in March and April it started to show up in the data in earnest.
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