Spending is out, saving is in. The trend not only has legs, it has depth and magnitude, as the personal income and spending report for November reminds. But at a time when prices are falling generally, the gap between spending in nominal terms (i.e., before adjusting for inflation) and real terms (after inflation) is growing. Ditto for personal income. Therein lie some of the critical opportunities and risks for 2009 and perhaps beyond.
Let’s start with the basics. U.S. disposable personal income dropped 0.2% last month in current dollar terms, the Bureau of Economic Analysis reported on Wednesday. That’s down from a slight 0.1% rise in October and the first monthly fall since July. A sign of the times, given the recession now in progress.