Reading this morning’s update on August personal income and outlays raises new questions about consumer habits for 2007. And that, in turn, raises questions about the economic outlook.
The first inquiry will center once again on Joe Sixpack’s capacity for spending in the new year. Granted, it’s a little early to be weighing what will come in 2007, although it’s never too early to worry about what’s just beyond the horizon. On that front, consider the chart below, which compares monthly changes in personal income with personal spending.

As you can see, August wasn’t kind to those who think Joe’s oblivious to the concept that income is finite and spending is, in theory, can be a black hole. There are many things that can change between now and the end of the year, but for the moment it’s clear that it’s time to rethink a world where consumer spending flies upward forever more.
To put a numerical face on the point, here’s the sobering fact du jour: last month’s advance in personal consumption expenditures was a thin 0.1%, the slowest since last November’s 0.05%. There’s no joy with personal income either, with August’s 0.3% rise also posting the weakest since November 2005.
Adding insult to injury, personal saving was a negative $45 billion last month too, continuing the long-running line of monthly red ink on this measure.
Nonetheless, the optimists say that a rebound will reveal itself once September’s report on income and outlays is published next month. The rationale for keeping a stiff upper lip is that the tumble in energy prices this month will give Joe and his counterparts new incentive to revive spending–an incentive that was sorely lacking during August’s relatively high price of fuel.
Joe may be battered, but he’s not down yet. Hope, in other words, is alive, even if it’s not exactly kicking today.