The Bureau of Economic Analysis released the Personal Income and Outlays data for March last week. Incomes and consumer spending were both up. The data had mainstream analysts crowing about a strong economy and good news for American consumers. But digging into the data reveals a very different picture.
Incomes were up 0.5% month-on-month. That seems like a solid gain — until you factor in rising prices. According to the Personal Consumption Expenditure (PCE) index, prices were up 0.9% in March. That means real incomes were down 0.4%.
Looking at the bigger picture, incomes were up, but not nearly as much as prices. Once again, we see price increases eating up income gains and then some. That means your standard of living is falling.
The Federal Reserve loves the PCE. That’s because it is probably the most dishonest of all the government’s dishonest inflation measures. It is manipulated to understate rising prices. So, real incomes are falling even faster than the data indicates.
Peter Schiff pointed out that American consumers would be better off in incomes were down 0.5% and prices fell 0.9%. Rising wages aren’t helpful if prices go up even faster.
What counts is not how much you’re paid, but how much you can buy. It’s the difference between what you earn and what you spend that counts. So, if wages are falling, but prices are falling even more, that’s a good thing because workers are better off.”
As it is, you’re working more and earning more, but you’re falling further and further behind. Real wages are collapsing.
Personal spending blew away expectations in March. Spending was up 1.1%. But where did that big increase in spending come from? It didn’t come from higher wages. It came from savings. The savings rate fell to 6.2% in March, the lowest in nine years. Schiff said he thinks savings will hit an all-time low before the year is over.
Consumers are dipping into a very shallow saving pool to try to keep their economic necks above water as prices are going up.”
Americans are also running up their credit cards. Revolving credit, primarily credit card debt, rose by a whopping 20.7% in February. (the March data will be out in the next week or so.) American consumers added $18 billion to their credit card bills in February alone.
Mainstream pundits spun rising consumer spending as a sign of a strong economy. But with prices up 0.9%, real spending was only up 0.2% in March. And as Schiff points out, prices being only up 0.9% “is a fantasy.”
They’re up much more than that. And so, spending is actually down. People are buying less stuff. They’re just paying more for the stuff they’re buying. And because they’re paying so much more for food, and energy, and rent, and insurance, and stuff like that, they don’t have enough money left over to go shopping on Amazon, which is why Amazon reported such bad earnings.”
This is why Schiff says a significant recession is likely on the horizon.
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