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Economy in Brief

U.S. Personal Income Lifted By Insurance Payments
by Tom Moeller October 31, 2005

Insurance payments following hurricanes Katrina and Rita rose $120B (AR) and lifted personal income by 1.7% in September after a 0.9% August decline that was much deeper than initially reported. It was the largest monthly increase in income since a 3.7% jump last December and exceeded Consensus expectations for a 0.3% rise.

Wages & salaries rose 0.3% (6.0% y/y) last month following a downwardly revised 0.1% August increase. Factory sector wages fell 0.5% (+3.4% y/y) and service sector wages rose 0.3% (6.9% y/y).

Disposable personal income jumped 1.9% (5.3% y/y) following a 1.1% drop in August that was initially reported at -0.1%. Adjusted for prices which rose 0.9%, take home pay rose 1.0% (1.5% y/y) after a 1.5% decline in August.

The PCE chain price index surged 0.9% last month as gasoline prices jumped 16.8% m/m, but gasoline prices have since retraced much of that increase. Less food & energy prices rose 0.2% following a downwardly revised 0.1% rise in August.

Personal consumption expenditures recovered about all of the prior month's unrevised 0.5% decline even though a 2.4% m/m decline in light vehicle sales lowered spending on durables by 2.3% (+1.6% y/y). Nondurables outlays jumped 1.3% (9.8% y/y), however, adjusted for higher prices spending on nondurables fell 1.0% (+2.9% y/y). Services spending rose 0.6% (6.2% y/y).

The personal savings rate remained negative for the fourth consecutive month. 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.

Disposition of Personal Income Sept Aug Y/Y 2004 2003 2002
Personal Income 1.7% -0.9% 6.3% 5.9% 3.2% 1.8%
Personal Consumption 0.5% -0.5% 6.7% 6.5% 4.9% 4.2%
Savings Rate -0.4% -1.8% 1.5% 1.7% 2.1% 2.4%
PCE Chain Price Index 0.9% 0.4% 3.8% 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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