The government released its estimate of personal income and spending for November and it contained some pretty good news (good is relative nowadays!). Real disposable income rose by 0.8% while real consumer spending rose by 0.6% (reflecting an inflation rate of -0.2% for the month due to declining energy prices). The report confirms that Hurricane Sandy contributed to the weakness in October, so the November figures reflect a bounceback from a temporarily depressed level. If one takes a 3-month average, real disposable income is growing at an annualized rate slightly in excess of 3% (mainly driven by November's surge) while real consumer spending is growing in excess of 3.5% (annualized). The personal savings rate rose to 3.6% (from 3.4%). On the inflation, both core and overall inflation are approximately 1.5% (overall inflation is 1.4% over the past year; core inflation is 1.5%).
The surprise from the report was the surge in real disposable income. Though some of it reflects a bounceback from Sandy, real disposable income has increased by 2.5% in the last 12 months, the highest year-over-year change since March 2011. If this is sustained, consumers may be better able to handle tax hikes than previously thought. It gets a little complex, but it's doubtful whether this pace will be sustained since it reflects depressed income in November 2011 and a surge in November 2012. Of course the big issue is how the resolution to the fiscal cliff will affect disposable personal income. Given the likelihood of the end of the payroll tax cut and higher taxes on upper-income individuals, real disposable income will take a significant hit in early 2013. The size of the impact on consumer spending will determine how weak the economy will be in the first half of next year.
