PCE Points To Weaker GDP Ahead

This morning the Bureau of Economic Analysis released the latest figures on personal consumption and expenditures.  The headline analysis read:   "Consumer spending was flat in December as households took advantage of the largest rise in income in nine months to boost their savings, setting the tone for a slowdown in demand early in 2012."

For the first time in a very long time the headline has it right.  We have discussed several times in our posts as of late about the issue with the decline in savings which was used to boost consumption.  Eventually, that comes to an end which has a negative impact to economic growth.  The chart shows this relationship.  Personal savings as a percent of wages and salaries is a bit volatile from month to month.   However, it is the trend that is important here.  When the trend of savings is increasing the trend of consumption is declining.   That analysis is simply logic.   What is important to note here is that rising trends in savings rates tend to coincide with recessions. 

The reason I bring this up is that, as we have stated, it is highly likely that the uptick of economic growth in Q3 and Q4 was highly ephemeral due to one time restocking activities. (read this post for more explanation )  The second chart shows this relationship a little more clearly.  Currently, the Federal Reserve expects the economy to grow this year by 2.5% in 2012.  This is up from the 1.6% rate ...