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Economy in Brief

U.S. Personal Income & Spending Firm
by Tom Moeller January 30, 2006

Personal income rose an expected 0.4% last month following an upwardly revised like increase in November. For the full year personal income rose 5.4% which together with the 5.9% increase in 2004 was the strongest two year rise since 2001. The twelve month comparison of 2.1% suffered due to Microsoft's payment last year of a $32B stock dividend.

Wage & salary disbursements rose the same 0.3% (3.7% y/y) as during November and the full year gain of 6.0% was the strongest since 2000. Factory sector wages reversed the prior month's decline and rose 0.1% (2.4% y/y) while service sector wages rose a moderate 0.3% (3.7% y/y) following an upwardly revised 0.4% November increase.

Disposable personal income rose 0.4% (0.9% y/y) for the second month. Adjusted for the negligible change in prices during December, take home pay jumped 0.4%, half the November increase which was boosted by a decline in prices and the year to year comparison was negative due to the dividend payout.

Personal taxes rose 0.4% (11.8% y/y) in December and for the full year rose 15.0% following a 4.9% gain during 2004.

Personal consumption expenditures rose a firm 0.9% versus expectations for a 0.7% gain. Spending on motor vehicles & parts jumped 11.4% (-5.6% y/y) and spending on furniture & household equipment added 0.3% (6.4% y/y) to a 1.6% November spike. Spending on clothing & shoes dipped slightly (+5.8% y/y) following two months of huge increase while services spending rose 0.5% (6.3% y/y) after a 0.8% November jump.

The PCE chain price index fell for the second consecutive month due to the third consecutive decline in gasoline & oil prices (+16.1% y/y). Less food & energy, prices rose 0.1% following an upwardly revised 0.2% November increase. Durables prices continued the most recent decline which began in May as furniture & household appliance prices fell (-4.0% y/y). Clothing & shoes prices also fell by 0.3% (-1.1% y/y) and services prices rose a modest 0.1% (3.3% y/y).

The personal savings rate was negative for the eighth month in the last nine. In comparison, the personal savings rate from the Federal Reserve's Flow of Funds accounts, through 3Q05, was similarly depressed but still a positive 0.9%. The Flow of Funds measure amortizes durable goods purchases over an expected lifetime instead of treating them as an expense.

The Income Implications of Rising U.S. International Liabilities from the Federal Reserve Bank of New York can be found here.

Disposition of Personal Income Dec Nov Y/Y 2005 2004 2003
Personal Income 0.4% 0.4% 2.1% 5.4% 5.9% 3.2%
Personal Consumption 0.9% 0.5% 6.2% 6.5% 6.5% 4.9%
Savings Rate -0.7% -0.2% 4.4% (Dec '04) -0.5% 1.7% 2.1%
PCE Chain Price Index -0.0% -0.4% 2.8% 2.8% 2.6% 1.9%
  Less food & energy 0.1% 0.2% 1.9% 2.0% 2.0% 1.3%
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