Join        Login             Stock Quote

Is This Another Stop And Go For Consumers?

 December 03, 2012 10:10 AM

(By Mani) Holiday season began with decent sales on Black Friday and strong a Cyber Monday, which, according to comScore, became the heaviest online spending day on record at $1.46 billion. However, predicting the actual state of personal income and spending has been difficult.

Personal consumption expenditures were very weak out of the gates in October, decreasing by 0.2 percent in nominal terms while dropping by 0.3 percent after adjusting for inflation. This was the first drop in personal consumption expenditures since May when we also saw a 0.2 percent decline.

However, the BEA indicated that the October results, both for income and spending, were affected by Hurricane Sandy, which hit the northeast on Oct. 29. According to the BEA, it is difficult to quantify the effects of the hurricane on these variables, but that the largest adjustments were made to wages and salaries due to work interruptions.

[Related -Bogle Says Indexing Destined To Win The Battle Of The Quants]

"While the BEA is correct in pointing out the effects on wages and salaries, it is also true that personal consumption expenditures typically surge during the days prior to a hurricane, which would tend to indicate that the weakness in spending would have actually been stronger than the reported drop of 0.2 percent during the month," Wells Fargo economist Eugenio Alemán wrote in a note to clients.

October's results may not be a good indicator for gauging what may happen during the fourth quarter of the year as the northeast region is not accustomed to hurricanes so consumers may not have been prone to hoard goods in the days prior to the hurricane.

[Related -VMAX and VMIN Poised to Be Most Important VIX ETP Launch in Years]

As the BEA indicates, the flatness in personal income during the month of October may be related to the effects that Hurricane Sandy had over wages and salaries. According to the BEA, the adjustment to wages and salaries was in the vicinity of $18 billion at an annual rate. Thus, private wage and salary disbursements decreased $17.1 billion in October after increasing $22.4 billion in September.

Furthermore, personal current transfer receipts decreased $6.7 billion during the month compared to an increase of $13.6 billion in September.

"It is important to note that we will probably see a reversal of the decreases in wages and salaries in November's personal income release as firms and workers recover these wages from work stoppage insurance payments as well as from all of the extra hours worked by public utility, clean up and security workers in the aftermath of the hurricane," Alemán noted.

Thus, expect a partial reversal in many of the November numbers, something that will make an analysis of the true state of personal income and spending during the last quarter of the year even more difficult.

"We also expect the effects of the fiscal cliff to start showing up in November and December. This means that the true state of economic activity for the last quarter of the year will remain highly uncertain, to say the least," Alemán added.



Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article imageBogle Says Indexing Destined To Win The Battle Of The Quants

Vanguard founder John Bogle gave a powerful speech last month at the Q Group’s Spring Seminar that lays out read on...

article imageVMAX and VMIN Poised to Be Most Important VIX ETP Launch in Years

REX Shares is launching two new VIX exchange-traded products on Tuesday in what is likely to be the most read on...

article imageThe April 29 Gold Triangle Breakout Update

If you’re just watching stocks, you may be missing this powerful Triangle Breakout surge in read on...

article imageSell In May, But It Is A Presidential Election Year

With May just around the corner, articles covering the "Sell in May' phenomenon are not in short supply and read on...

Popular Articles

Daily Sector Scan
Partner Center

Related Articles:

The April 29 Gold Triangle Breakout Update
More Articles on: Economics Data

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.