Economic Indicator: Personal Income and Consumption
Economic Indicator: Personal Income and Consumption
Of all the economic indicators, this one is often viewed as the one to watch for future changes in the GDP. Consumption is the sum of estimated monthly retail sales and unit car sales (quantity of cars sold) and services. Personal Consumption Expenditures (PCE) represents the market value of all the goods and services purchased by individuals. PCE makes up about 55% of the total GDP so anything that lets us see how it is changing is a good lead into what the GDP will be doing soon.
Personal income represents the compensation that individuals receive from all sources - wages, dividends, interest payments, proprietor’s income, transfer income (social security, welfare, unemployment) and other labor income. If we see this rise, expenditures often rise soon after. If Personal Income rises but expenditures don’t, then more people are putting money into savings. The nominal Personal Income and the Real Income (adjusted for inflation) are considered very good indicators of the current strength of the economy.
Increases in the PCE causes = The Stock Market to Rise
The Bond Market to Decrease
The Value of the Dollar to Rise
Decreases in the PCE causes = The Stock Market to Decrease
The Bond Market to Rise
The Value of the Dollar to Decrease
Bear Market Implications
People will spend money for three reasons:
(1) Because they have earned more
(2) Because they are buying something important
(3) Because they think that the value of money will soon decrease drastically
In both (1), you would see a rise in Income precede a rise in Expenditures. In (2) you would see a rise in Expenditures without a rise in Income. Often this would be matched by an increase in Durable Goods Orders. (See Guide on the Economic Indicator: Durable Goods Orders).
The same rise in Expenditures would happen in (3) with no rise in Income and often with a lesser rise in Durable Goods Orders. This is because when people are trying to expend money that they think will soon lose much of their buying value, they tend to buy consumables - food, gasoline, heating fuel, clothes, ammunition, etc.
If there are more people out there that think an impending Bear Market is real and will result in a major market setback, then you will see a large increase in Expenditures in the prior time period with no corresponding rise in either Income or Durable Goods Orders.
If on the other hand, there are more people that think that the economy will survive intact with little or no effects from Iran, Iraq, the new president or any other economic downtown, then the Expenditures will rise normal for the near term, and no rise at all for a seasonally adjusted Expenditure indicator.
If you see the Expenditures indicator abnormally rising, you can bet that people are stocking up on all the Bear Market kinds of supplies that all the doomsayers are saying will be needed after a major stock market setback - like moving funds out of equities and into gold or other cash equivalents. If that is the case, then you should be invested in stocks, bonds or commodities that reflect that potential.
If you see this rise, you can also expect that the value of the dollar will rise. If you see that, then buy gold as soon as you see a pattern of rise.
This rise in Expenditures may precede the actual rise in the value of the dollar and of monetary equivalents. The Expenditures rise should peak in just prior to an expected crisis (the indicator comes out between the 22nd and the 31st of the month) .
As soon as you see it, if it has risen by 10% or less over the previous money, then sell your gold. This is a cautious approach since you do not want to have to try to time your sell on a day-by-day basis by watching the paper or computer as the price of gold fluctuates.
Soon after an expected Crisis passes, Expenditures will return to normal and the value of the dollar will decrease. If you wait until this happens, you will lose or just break even when you sell your gold.