Personal income and savings January 2018

Transcription

1 Personal income and savings January 2018 United States of America Analysis Report March 2, 2018 Contacts Felix Boni Chief Credit Officer Jordy Juvera Economics Associate Cynthia Pérez Economics Analyst HR Ratings comments on the modest but possibly accelerating growth in disposable personal income, helped by a decline in taxes, with falling personal savings still critical to consumer spending, while inflation remains stable. For the quarter ending in January disposable personal income (DPI) increased at a 2.06% annualized rate in real terms vs. the weak quarter that ended in October (Table 1). However, perhaps the more relevant number is that on a last twelve month basis (LTM) DPI growth remains modest, advancing by only 1.38%, which is substantially below the 2.72% increase in consumer spending (Table 2). This gap continues to be covered by the declining in personal savings (Graph 4). Nevertheless, it shows signs of gradually being decreasing as seen in the comparative evolution of DPI and consumer spending displayed in Graph 3. Despite the concerns over accelerating inflation in the future, the latest PCE 1 inflation indicators show little upward movement (Graph 5). Table 1: Quarterly Personal Income and its Disposition in Billions of 2009 USD* Oct-17 Change YoY** USD** QoQ** Wages & Salaries 7,268 7,450 7, % % Supplements to W&S 1,712 1,742 1, % % Employee Compensation 8,980 9,192 9, % % Proprietors' Income 1,219 1,228 1, % % Rental Income % % Interest Income 1,296 1,301 1, % % Dividend Income % % Personal Income on Assets 2,143 2,165 2, % % Personal Income before Taxes and Transfers 12,989 13,250 13, % % Plus Personal Current Transfers 2,509 2,543 2, % % Less: Contrib. for govt. social insurance 1,125 1,162 1, % % Personal Income before Taxes 14,372 14,631 14, % % Less: Personal current taxes 1,777 1,839 1, % % Disposable Personal Income (DPI) 12,595 12,793 12, % % Less personal savings % % Less interest payments % % Less personal current transfers % % Non pers. consumer expend. outflows % % Personal Consumption Expenditures 11,722 11,944 12, % % Personal Savings Rate*** 3.52% 3.18% 2.73% -78 n.a. -44 Source: HR Ratings w ith data from the BEA (converted into real 2009 USD). *Based on three month moving averages. **YoY: Change vs. same quarter year earlier. USD & QoQ: Absolute change and Annualized change vs. immediately prior quarter. ***Absolute values refer to the change in basis points in the personal savings rate (PSR). PSR = Personal Savings / DPI Of special interest in this report is the impact of taxes on the DPI. For the quarter that ended in January, personal income before taxes increased at an annualized quarterly real rate of 1.92%. However, as taxes increased only at a 0.94% rate, DPI rose a stronger 2.06%. More relevant is the fact that for the month of January, alone taxes (excluding social insurance contributions) declined by 3.66% in real terms vs. December. As a result, after tax personal income rose by 0.55% vs. December, sharply stronger than the 0.02% rise in income before taxes (including insurance contribution and transfers). 2 1 PCE: Personal Consumer Expenditures. 2 Generally, because of their volatility, we avoid analysis based on monthly numbers preferring quarterly data. However, given the relevance of tax changes taking effect in January we believe an exception is in order. Hoja 1 de 8

2 Personal income and savings January 2018 Given the declines in personal savings over at least the last two years, we have our doubts as to the impact on consumer spending of stronger after-tax income. The January data provide some support for this view (although it is still too early to make any definitive conclusion). Nevertheless, it is relevant to also mention that in the month of January personal savings increased at the extremely strong rate of 27% in real terms vs December 3. As a consequence, and despite the strong 0.55% monthly rise in DPI, consumer expenditures in January experienced an unusual decline, falling by 0.14% relative to December. In Table 1 we show the importance of personal savings in supporting consumer spending, whose growth has been substantially larger than the increase in personal income. For the quarter ending in January, consumer spending increased US$106bn. Of this, we estimate that US$56bn was financed by a rise in DPI of which US$14bn was used, largely to interest payments, leaving a net increase in income of US$51bn. The decline in personal savings of US$55bn made it possible to increase spending by the before mentioned US$106bn. The role of declining personal savings is seen in the reduction of the personal savings rate which fell from 3.52% for the quarter ending in January 2017 to 3.18% for the quarter ending in October, and to 2.73% in the January quarter to 2.52% for November and December. In Table 2 we present the same metrics but on the basis of last twelve months time periods. The general trends are comparable with spending at rates (2.72%) not consistent with income growth (1.38%), and the difference coming from declines in personal savings. Table 2: Last Twelve Months Personal Income and its Disposition in Billions of 2009 USD Change 17 vs. 16 USD* 18 vs. 17 Wages & Salaries 7,194 7,301 7, % % Supplements to W&S 1,692 1,710 1, % % Employee Compensation 8,886 9,011 9, % % Proprietors' Income 1,204 1,213 1, % % Rental Income % % Interest Income 1,254 1,281 1, % % Dividend Income % % Personal Income on Assets 2,182 2,145 2, % % Personal Income before Taxes and Transfers 12,880 13,009 13, % % Plus Personal Current Transfers 2,457 2,502 2, % % Less: Contrib. for govt. social insurance 1,106 1,126 1, % % Personal Income before Taxes 14,232 14,385 14, % % Less: Personal current taxes 1,772 1,771 1, % % Disposable Personal Income (DPI) 12,460 12,613 12, % % Less personal savings % % Less interest payments % % Less personal current transfers % % Non pers. consumer expend. outflows % % Personal Consumption Expenditures 11,288 11,599 11, % % Personal Savings Rate** 6.07% 4.70% 3.35% -137 n.a Source: HR Ratings w ith data from the BEA (converted into real 2009 USD). *Absolute USD change in LTM from Jan to Jan **Absolute values refer to the change in basis points in the personal savings rate (PSR). PSR = Personal Savings / DPI In Table 3 we present the quarterly evolution of consumer spending that shows a strong 3.60% annualized rate of growth vs. the October quarter. As has typically been the case, real term spending on durable consumer goods growth has been particularly strong (9.97%), perhaps in part due to declining prices. Over the last twelve months, durable goods 3 These data, as are all the information in this report, are expressed in seasonally adjusted terms at annual rates. Hoja 2 de 8

3 Jan-14 Apr-14 Jul-14 Oct-14 Apr-15 Jul-15 Oct-15 Apr-16 Jul-16 Oct-16 Apr-17 Jul-17 Oct-17 Personal income and savings January 2018 inflation has been a negative 2.30% in contrast to services inflation of 2.37%, and overall PCE inflation of 1.65%. Table 3: Quarterly Personal Consumer Expenditures in Billions of 2009 USD Change vs. Period: Immediately Oct-17 Prior Year Prior* Goods 4,142 4,268 4, % 5.81% Durable Goods 1,647 1,728 1, % 9.97% Non-Durable Goods 2,538 2,590 2, % 3.66% Services 7,589 7,693 7, % 2.57% Total 11,722 11,944 12, % 3.60% Source: HR Ratings w ith data from the BEA converted into billions of real 2009 USD (3mma) *Anualized change vs. immediately prior quarter Data might not sum due to the use of the different appropriate inflation deflators Returning to the question of changes in taxes, in Graph 1 we show the annualized quarterto-quarter change in personal income before income taxes and DPI or after-tax income. The relationship changes over time; however, in the three months culminating in January, aftertax income growth has been accelerating such that taxes have had a reduced negative impact on DPI. If the January monthly numbers are any indication, future growth in DPI should exceed pre-tax income growth. Graph 1: Real annualized quarterly change in Personal Income before and after taxes 7% 6% 5% Annualized Change in pre-tax personal income Annualized Change in after-tax personal income (DPI) 4% 3% 2% 1% 0% (1%) (2%) Source: HR Ratings w ith data from the BEA, converted into real USD. Three month moving averages. In Graph 2 we show the relationship between total employee compensation relative to total personal income before transfers and taxes. As a consequence of the financial crisis of 2008, compensation s share has declined. However, it appears gradually to be regaining a small proportion of lost territory. Hoja 3 de 8

4 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jul-15 Jul-16 Jul-17 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Personal income and savings January 2018 Graph 2: Employee compensation as a percentage of income before transfers and taxes (3mma) 72.0% 71.5% 71.0% 70.5% 70.0% 69.5% 69.0% 68.5% 68.0% Source: HR Ratings w ith data from US BEA In Graph 3 we show the relative evolution between growth in consumer spending and DPI on a LTM basis. Growth in consumer spending has been relatively stable at around 2.73%. Disposable personal income growth has been consistently weaker throughout the second half of 2016 and all of 2017, reaching 1.38% through January. However, we now see signs that the gap is closing and should close further as the full effect of the tax reductions are reflected in the numbers. Still, as long as the gap exists, the evolution of personal savings will remain a critical variable in determining future spending growth. Graph 3: Real Growth in Personal Consumer Spending and Personal Income (LTM) 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% (0.5%) (1.0%) (1.5%) (2.0%) (2.5%) Disposable Personal Income Personal Consumer Expenditures Source: HR Ratings, w ith data from the BEA, converted into real USD. Hoja 4 de 8

5 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jul-15 Jul-16 Jul-17 Personal income and savings January 2018 In Graph 4, therefore, we show the evolution of personal savings on a three-month moving average basis. As the gap expanded between the rates of growth for spending and income, the level of savings has declined to cover the gap and keep spending relatively strong. Interestingly, with the January report we see a minor uptick in the declining line. This is the result of the increase in savings in January. The critical question is whether this increase is merely a temporary reversal in the longer-term trend (as we saw in February and March 2017) or a more lasting phenomenon in which individuals decide to use a portion of their tax savings to bolster depleted savings with this continuing for a substantial numbers of months. Graph 4: Quarterly Personal Savings in Billions of 2009 USD 1,200 1,100 1, Source: HR Ratings w ith data from the BEA converted into billions of real 2009 USD. Three month moving averages at annualized rate. Finally, there is a continued debate as to whether the pace of inflation is going to accelerate as a result of the expected stronger growth. For the FED s preferred PCE inflation measure, the January number at least does not support this view. In the case of headline PCE inflation (green line) we have now seen two consecutive months of declining annual monthly inflation, falling to 1.65% in January vs. 1.74% in November and 1.71% in December. In the case of core PCE (orange line), price stability is also the story thus far. January PCE core inflation actually fell marginally to 1.52% from 1.53% in December and is up a modest 5 basis points from the 1.47% level reported for October. Hoja 5 de 8

6 Jan-14 Apr-14 Jul-14 Oct-14 Apr-15 Jul-15 Oct-15 Apr-16 Jul-16 Oct-16 Apr-17 Jul-17 Oct-17 Personal income and savings January 2018 Graph 5: Annual U.S. Inflation 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% CPI Headiine CPI Core PCE Headline PCE Core -0.5% Source: HR Ratings forecasts with data from the US Bureau of Labor Statistics. Hoja 6 de 8

7 Personal income and savings January 2018 HR Ratings Senior Management Management Chairman of the Board Vice- President Alberto I. Ramos Aníbal Habeica Chief Executive Officer Fernando Montes de Oca Analysis Chief Credit Officer Chief Operating Officer Felix Boni Álvaro Rangel Public Finance / Infrastructure Financial Institutions / ABS Ricardo Gallegos Fernando Sandoval ricardo.gallegos@hrratings.com fernando.sandoval@hrratings.com Roberto Ballinez roberto.ballinez@hrratings.com Corporates / ABS Methodologies Luis Quintero Alfonso Sales luis.quintero@hrratings.com alfonso.sales@hrratings.com José Luis Cano joseluis.cano@hrratings.com Regulation Chief Risk Officer Head Compliance Officer Rogelio Argüelles Rafael Colado rogelio.arguelles@hrratings.com rafael.colado@hrratings.com Business Development Business Development Francisco Valle francisco.valle@hrratings.com Hoja 7 de 8

8 Personal income and savings January 2018 Mexico: Avenida Prolongación Paseo de la Reforma #1015 torre A, piso 3, Col. Santa Fe, México, D.F., CP 01210, Tel 52 (55) United States: One World Trade Center, Suite 8500, New York, New York, ZIP Code 10007, Tel +1 (212) HR Ratings de México, S.A. de C.V. (HR Ratings), is a Credit Rating Agency authorized by the National Banking and Securities Commission (CNBV), registered by the Securities and Exchange Commission (SEC) as a Nationally Recognized Statistical Rating Organization (NRSRO) for the assets of public finance, corporates and financial institutions as described in clause (v) of section 3 (a) (62) (A) of the US Securities Exchange Act of 1934 and certified as Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). HR Ratings de México SA de CV (HR Ratings) ratings and/or opinions are opinions of credit quality and/or regarding the ability of management to administer assets; or opinions regarding the efficacy of activities to meet the nature or purpose of the business on the part of issuers, other entities or sectors, and are based exclusively on the characteristics of the entity, issuer or operation, independent of any activity or business that exists between HR Ratings and the entity or issuer. The ratings and/or opinions assigned are issued on behalf of HR Ratings, not of its management or technical staff, and do not constitute an investment recommendation to buy, sell, or hold any instrument nor to perform any business, investment or other operation. The assigned ratings and/or opinions issued may be subject to updates at any time, in accordance with HR Ratings methodologies. FORWARD-LOOKING STATEMENTS Certain statements included in this presentation may include forward-looking statements. These statements are not historical facts, but instead represent only HR Ratings beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the HR Ratings control. It is possible that HR Ratings actual economic projections and financial conditions may differ, possibly materially, from the anticipated results and financial conditions indicated in these forwardlooking statements. NO DUTY TO UPDATE HR Ratings assumes no obligation to update any information or forward-looking statement contained herein, save for any information required to be disclosed by law. Hoja 8 de 8