Three Aces For November: Income, Spending & Durable Goods Orders

Today’s November updates for personal income and spending, along with fresh data on durable goods orders, offer another round of encouraging news on the side of growth. For those who argue that the economy is collapsing, today’s numbers offer a sharp rebuke. In fact, similarly robust numbers for November have been published for other indicators in recent weeks. Earlier this month I projected that the broad profile of economic activity in November was on track to improve over October, and today’s updates all but seal the deal. The main point is that the risk of a recession, based on the numbers in hand, continues to look like a low-probability event in the here and now. That’s been the message all along, and it remains the case today.


Let’s take a closer look at today’s updates, starting with personal income and spending. Clearly, November was a month for revival in consumption and income. Disposable personal income (DPI) increased by 0.6% last month, the most since February. Personal consumption expenditures also rebounded sharply, rising 0.4%. Both of those gains, by the way, were widely expected, as I noted earlier today, a few hours ahead of the releases.

Far more noteworthy is the upturn in the year-over-year percentage changes for income and spending with today’s news. DPI as of last month is higher by nearly 4.0% vs. a year ago—the fastest rate of growth in more than a year. Personal consumption expenditures are looking stronger on an annual basis too, rising 3.5% vs. a year ago. That’s well short of the highest rate this year, but the numbers appear to moving higher. The main point is that income and spending are showing signs of improvement. This isn’t a sign of an economy that’s weakening. It wouldn’t mean much if most of the other key indicators were stumbling, but a broad review of the macro reports is also upbeat, as shown by The Capital Spectator Economic Trend Index.

Consider, too, that private-sector wages are now rising at a substantially higher annual rate as of November: +4.3% vs. a year ago. That’s the highest pace in more than a year, and sharply higher than October’s 3.0% annual increase. The idea that the wages are collapsing, in short, finds no support in today’s update.
November’s durable goods orders report is encouraging too. Although new orders have been quite weak recently, today’s update paints a picture of improvement during the previous month’s activity. In fact, new orders for durable goods generally, along with business investment (new orders for nondefense capital goods excluding aircraft) posted back-to-back gains in October and November.

It’s still not clear if durable goods orders can pull out of their slump. Indeed, the year-over-year rolling changes for this series look quite gloomy, as the chart below reminds. But are we seeing some light in this tunnel in the November update? Business investment’s annual change is positive as of last month for the first since the spring. Is that a signal that the trend for durable goods generally is headed higher in the months ahead?

One reason for answering with a tentative “maybe” is that income and spending are looking stronger, as are several other key economic indicators, including the critical housing market. All of this, by the way, is unfolding despite the worries over the fiscal cliff, which remains uncertain as to the outcome. But if Washington could somehow get its act together, the outlook for 2013 would suddenly turn substantial brighter. Even without a resolution of the fiscal cliff mess there’s a good case for expecting that modest growth is still the path of least resistance. That’s been true all along, albeit with a few bumps along the way.

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