Fiscal Cliff Overshadows Gains in Personal Income

Written by: Alan Edwards

Normally when an economic report is upbeat and beats expectations the news creates a “buzz” on Wall Street and across the financial world–and less the United States economy is poised to tumble off the “fiscal cliff.”

The report for November Personal Income and Outlays was released by the United States Department of Commerce Bureau of Economic Analysis this morning. The good news is that personal income rose 0.6% though experts predicted only a 0.4% rise in this number.

Consumer spending also rose at a rate of 0.4% and the savings rate of American households rose by 2/10 of a percent to 3.6% of disposable income compared to 3.4% in October 2012.

The bad news is very few people on Wall Street or in the financial markets paid any notice.

It seems that the Mayan doomsday prophecy was incorrect and rather than the world ending the United States remains on the edge of the so-called fiscal cliff. Now, perhaps the failure of the Republicans to vote on the fiscal cliff issue was because they truly believed the world would end. But it hasn’t, and like a truck with two wheels over the edge of an embankment, the US economy might be readying itself for a nasty tumble down.

This would explain why otherwise great economic news hardly got a mention by political or economic pundits or even economists. Not even the Democrats have had anything to say about this better-than-expected report–even business spending came in better than anticipated.

Nevertheless these numbers are important. The rise in consumer spending in November 2012 surged by the greatest amount in nearly 3 years.

But the rise in personal income is especially important and encouraging as throughout the recovery this number hardly budged.

In November wages and salaries bounced back with a $41 billion increase over October, a month that saw a significant disruption in income numbers due to hurricane Sandy. And while it’s obvious that American households are making every effort to live within their incomes, incomes are rising more quickly than spending causing the savings rate to increase to 3.6 percent of income in the month of November 2012.

This good news about consumer spending outlays follows reports yesterday that the third – quarter growth of the American economy was up a quite respectable 3.1 percent. In part this is due to business spending more at year-end despite fears concerning congresses inability to resolve fiscal cliff issues.

Despite all this good news it appears that consumers too are concerned about congressional inaction. Consumer sentiment dropped nearly a full 10 points to 72.9 between the end of November and December. That number is now 72.9 and it is at its lowest since July 2012.


Fiscal Cliff Overshadows Gains in Personal Income

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