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Economy in Brief

U.S. Personal Income Firm, Core Price Increases Stable-to-Lower
by Tom Moeller October 30, 2006

Personal income beat expectations last month and rose 0.5% after an upwardly revised 0.4% August increase. Despite these firm gains, the three month income rise at 5.5% (AR) is down from near 10% growth early this year.

Disposable personal income increased 0.5% (5.9% y/y) after an upwardly revised 0.5% August increase. In contrast to the slowdown in total income, the three month growth in take home pay has been stable at 6.4% (AR), helped by very recent weakness in personal taxes (+13.3% y/y).

Adjusted for recently lower prices, disposable personal income increased 0.8% (3.9% y/y) after two months of 0.2% gain. Real disposable income grew 3.7% (AR) last quarter after a 1.7% 2Q increase. Real disposable income per capita jumped 0.7% (3.0% y/y).

Personal consumption rose 0.1%. Expectations had been for a 0.3% increase. When adjusted for the 0.3% decline in prices, real consumer spending rose 0.4% after a 0.1% August decline. Unit vehicle sales in September recovered half of the prior month's decline with a 3.5% increase. Real PCE in 3Q grew 3.1% (AR), better than the 2.6% gain during 2Q.

The PCE chain price index fell 0.3% due to last month's 13.4% decline in retail gasoline prices. Gasoline prices in October are down another 11.9% m/m. Less food & energy prices rose an expected 0.2% but the August gain was revised higher to 0.3%. The three month change in core prices is flat-to-lower since March at 2.3% (AR), helped by falling durable and nondurable goods prices.

Wage & salary disbursements surged 0.5% (7.6% y/y) after the meager 0.2% August increase. Wages in the private service-producing industries surged 0.8% (8.4% y/y) but factory sector wages fell 0.1% (+6.7% y/y) for the second decline in the last three months.

Interest income rose 0.1% (8.7% y/y) for the third straight month while dividend income jumped another 1.1% (11.5% y/y).

The personal savings rate was a slightly less negative -0.2% last month and so far in 2006 has averaged -0.5%, the same as last year. Should the Decline in the Personal Saving Rate Be a Cause for Concern? from the Federal Reserve Bank of Kansas City is available here.

Disposition of Personal Income September August Y/Y 2005 2004 2003
Personal Income 0.5% 0.4% 6.8% 5.2% 6.2% 3.2%
Personal Consumption 0.1% 0.2% 5.5% 6.5% 6.6% 4.8%
Savings Rate -0.2% -0.5% -0.5% (Sept. '05) -0.4% 2.0% 2.1%
PCE Chain Price Index -0.3% 0.3% 2.0% 2.9% 2.6% 2.0%
  Less food & energy 0.2% 0.3% 2.4% 2.1% 2.0% 1.4%
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