Analyzing Economic Indicators: Monthly vs. Annualized Growth Rates

 When examining economic performance, it’s important to consider not only annual changes but also the trends unfolding month by month. Monthly changes provide a snapshot of short-term fluctuations, while annualized changes, calculated from monthly data, allow us to understand how these trends might develop over a full year if they remain consistent. In this blog post, we’ll dive into key economic indicators—Real Personal Consumption Expenditures (PCE), PCE Excluding Food & Energy, Real Disposable Income, and Real PCE for Durable Goods—and compare their monthly, annual, and annualized percentage changes.

The Data Breakdown: Monthly vs. Annual Percentage Changes

Understanding the Trends

1. Real Personal Consumption Expenditures (PCE)

   • Annual % Change: 2.91%
   • Monthly % Change: 0.15%
   • Annualized % Change: 1.777%

   Real PCE grew by 2.91% annually, a healthy sign that consumer spending is strong. However, when we look at the monthly change of 0.15%, the annualized growth rate derived from this is much lower at 1.777%. This indicates that while spending was strong over the past year, the most recent months show a slowdown in spending growth. If this trend continues, the growth rate for the coming year might not reach the levels of the previous one.

2. PCE Excluding Food & Energy

   • Annual % Change: 2.68%
   • Monthly % Change: 0.13%
   • Annualized % Change: 1.576%

   Excluding volatile sectors like food and energy, the PCE grew by 2.68% annually. The monthly change of 0.13% results in an annualized growth rate of 1.576%, again indicating that recent trends suggest slower growth in consumer spending once food and energy prices are excluded. This could be reflective of economic caution in other areas of discretionary spending.

3. Real Disposable Income

   • Annual % Change: 3.09%
   • Monthly % Change: 0.07%
   • Annualized % Change: 0.8005%

   Real disposable income has grown by 3.09% over the past year, but the monthly increase of just 0.07% suggests a much lower annualized rate of 0.8005%. This could indicate that wage growth or other factors impacting disposable income have slowed significantly, which may in turn affect consumer spending capacity in the near future.

4. Real PCE: Durable Goods

   • Annual % Change: 3.78%
   • Monthly % Change: 0.01%
   • Annualized % Change: 0.175%

   Durable goods spending has the highest annual growth rate at 3.78%, but the minimal monthly growth of just 0.01% suggests a sharp slowdown. The annualized rate of 0.175% shows that recent months have been much weaker for durable goods consumption. This may reflect higher interest rates or economic uncertainty, causing consumers to delay large purchases.

What Does This Tell Us?

The comparison between annual changes and annualized changes from monthly data suggests a potential cooling off in economic activity. While the past year showed strong growth in most indicators, the monthly data paints a more cautious picture. If these monthly trends continue, growth rates over the coming year may be much lower than those observed in the past year.

Here are a few key takeaways:

1. Slower Growth Ahead? The lower annualized changes suggest that while consumer spending and income have been strong, the economy might be heading toward a period of slower growth.

2. Impact of Rising Interest Rates: The dramatic slowdown in durable goods consumption could be linked to rising interest rates, which make financing big-ticket items like cars and appliances more expensive. This, coupled with economic uncertainty, might be leading consumers to hold off on such purchases.

3. Inflationary Pressures: While inflation is moderating, as indicated by the PCE Excluding Food & Energy data, it’s still a significant factor. The lower annualized rate might indicate that inflation is stabilizing, but consumer caution remains high.

Conclusion

As we move forward, it will be crucial to monitor whether these trends continue. If monthly growth continues to lag behind annual performance, we may see a shift in the economic landscape, with more subdued growth in spending and income. For businesses and policymakers, understanding these trends will help prepare for potential shifts in consumer behavior and broader economic dynamics.

In a time of economic uncertainty, keeping a close eye on monthly data and how it annualizes provides critical insight into the future trajectory of growth.