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Economy in Brief

U.S. Income & Spending Above Expectations
by Tom Moeller April 29, 2005

Personal income in March topped Consensus expectations and rose 0.5% following an upwardly revised 0.4% increase in February. Disposable personal income also rose 0.5% (5.8% y/y) although when adjusted for price inflation take home pay was unchanged m/m (3.3% y/y).

Wage & salary income rose 0.3% (5.8% y/y) following an upwardly revised like gain in February. Wages in service producing industries rose 0.4% (6.4% y/y) however factory sector wages fell 0.2% (5.8% y/y), the first decline in four months.

Personal consumption increased 0.6% and beat expectations for a 0.4% gain while February's increase was revised up. Durable goods spending jumped 2.2% (5.2% y/y) as spending on motor vehicles advanced 6.2% (7.5% y/y).

Nondurables spending fell slightly even though spending on gasoline & oil rose 6.4% (16.7% y/y), all a function of a 7.6% (20.2% y/y) rise prices. Spending on clothing fell 2.3% (+1.9% y/y). Services spending rose 0.6% (6.1% y/y) as the cost of household operation, including utilities, rose 1.7% (10.3% y/y).

The personal savings rate fell to 0.4%. The low number compares to the net worth of the household sector (from the flow of funds accounts) which has been rising. Total net worth was 5.5 times disposable income in 4Q04, up 10% versus the lows of two years earlier. The gain was powered by a 23.5% rise in the owners equity in real estate over those two years.

The PCE chain price index rose 0.5% and less food & energy, the 0.3% m/m increase pulled the y/y gain back to its highest level since early 2003.

Disposition of Personal Income Mar Feb Y/Y 2004 2003 2002
Personal Income 0.5% 0.4% 6.0% 5.6% 3.2% 1.8%
Personal Consumption 0.6% 0.7% 6.1% 6.0% 5.2% 4.6%
Savings Rate 0.4% 0.5% 1.0% 1.2% 1.4% 2.0%
PCE Chain Price Index 0.5% 0.3% 2.4% 2.2% 1.9% 1.4%
  Less food & energy 0.3% 0.2% 1.7% 1.5% 1.3% 1.8%
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