SANGUINE ABOUT THE US CONSUMER?

US December Personal Income came in a weak 0.4%, continuing the weakness seen in November (also 0.4%). This should be causing at least a small frisson among economists, as the world looks to the US consumer for a large slice of GDP growth, and as equity withdrawal from housing assets slows, income growth becomes very important. However, instead of seeing this as a worrying trend, pundits are positing two reasons for the weakness: The first is the effect of the hurricanes. But the hurricanes happened three and four months ago, whereas personal income dropped in August and recovered in September - as you would expect. Second, the Microsoft dividend was paid out close to a year back, which makes the year on year comparisons look worse. While there may be some truth in this, it does not explain the trend which is emerging, but rather tries to hide it. This chart shows fluctuations in Personal Income over the last few decades (thanks to Contrary Investor again):


The US economy has slipped into recession almost every time Personal Income growth slowed to the level seen at the end of December. With the pressure on the consumer from rising interest rates and higher energy costs, what do you think that means for the year ahead?

Meanwhile, the Morgan Stanley investors forum, as related by the esteemed Chief Economist, Stephen Roach, found most participants sanguine about the outlook for consumer spending. Well, unless that blue line on the chart bounces, they might have to rethink their strategies.