Spending and Wages

Yesterday brought the release of the personal income and spending numbers for January. The report was mixed. The good news is that personal consumption expenditures, geek speak for consumer spending, were up for the fourth month in a row, and look good when viewed on a year-over-year basis (red line in chart). The consumer continues to represent about 70% of the US economy, and is still a very large contributor to global growth, so we watch this measure closely and view the yearly rate of change in spending as a leading indicator of the equity markets.

Unfortunately, the news was not all good. Personal income came in below expectations, and inflation-adjusted wages are now clearly in a downtrend. We view real wages as a leading indicator of spending, so we don’t take the recent softness in wages as good news. Our measures of real wages are not yet negative on an absolute basis, but the rate of change is decelerating fast, so we will be watching this measure very closely in coming months. Tomorrow is Wednesday, and we will have our normally scheduled weekly investment team meeting. If you are guessing from this blog that we’ll be discussing the latest spending and wage numbers, you’d be correct!