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Economy in Brief

U.S. Personal Income Fell
by Tom Moeller September 30, 2005

Personal income fell 0.1% last month after an unrevised 0.3% gain in July. Consensus expectations had been for a 0.3% August increase. The Commerce Department indicated that declines in rental & proprietors' income due to Hurricane Katrina probably reduced the two measures by a combined $100 billion annualized.

Wages & salaries rose 0.2% (6.6% y/y) in August following an upwardly revised 0.7% increase in July. Factory sector wages rose 0.1% (4.7% y/y) after a 0.5% July increase. Service sector wages rose 0.2% (7.7% y/y) after an upwardly revised 0.9% July surge.

Disposable personal income fell 0.1% (+4.4% y/y) following two months of 0.4% increase. Adjusted for prices which rose 0.5%, take home pay fell 0.5% (+1.4% y/y).

Personal consumption expenditures fell 0.5% due to a sharp drop in light vehicle sales that pulled spending on durables down 8.9% (+3.2% y/y). Nondurables outlays surged 1.1% (9.4% y/y). Spending on gasoline & fuel oil rose 5.7% (32.4% y/y) pumped by an 8.6% m/m increase in gasoline prices that rose another 16.8% this month. Services spending increased 0.4% (5.9% y/y) for the second consecutive month.

The personal savings rate remained negative for the third consecutive month. Nevertheless, the Federal Reserve indicated last week that household sector net worth (from the Flow of Funds Accounts) improved in 2Q to a four year high due to an increase in owners' equity in real estate which has averaged 11.3% per year since 2001.

The PCE chain price index rose 0.5% last month. Less food & energy prices rose 0.2% (2.0% y/y) following two months of 0.1% gain.

What's Driving Wage Inequality? from the Federal Reserve Bank of Richmond can be found here.

Inflation Modeling: A Policy Maker's Perspective, remarks made by Federal Reserve Board Governor Donald L. Kohn is available here.

Disposition of Personal Income Aug July Y/Y 2004 2003 2002
Personal Income -0.1% 0.3% 5.6% 5.9% 3.2% 1.8%
Personal Consumption -0.5% 1.2% 6.6% 6.5% 4.9% 4.2%
Savings Rate -0.7% -1.1% 1.5% 1.7% 2.1% 2.4%
PCE Chain Price Index 0.5% 0.3% 3.0% 2.6% 1.9% 1.4%
  Less food & energy 0.2% 0.1% 2.0% 2.0% 1.3% 1.8%
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