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Economy in Brief

U.S. Personal Income Firm, Core Prices Tame
by Tom Moeller February 1, 2007

Personal income increased 0.5% after two months of 0.3% rise and matched Consensus expectations. For the year, income rose 6.4%, faster than the 5.2% gain during 2005.

Wages & salaries jumped 0.6% (6.4% y/y) and for the whole year rose 6.6% after the 5.1% increase during 2005. Last year's gain was the strongest since 2000. Factory sector wages made up for the prior month's slip with a 0.2% (3.8% y/y) increase. The full year gain of 4.7% also was the strongest since 2000. Wages in the private service-producing industries rose a strong 0.8% (7.0% y/y) and for the year rose 7.2%.

Interest income declined 0.4% (+3.0% y/y) for the third consecutive month and earlier months' gains were revised away. Dividend income surged 1.1% (11.7% y/y) for the fourth month and for the year rose 11.3%.

Disposable personal income advanced 0.5% (5.2% y/y), better than the 0.3% increase during November and for the year rose 5.5%. Personal taxes increased 0.7% (10.9% y/y) and for the year rose 13.3%. Real disposable personal income rose 0.2% (2.9% y/y) last month and for the year rose 2.7%. Real disposable income per capita rose 1.8% last year, up from the 0.2% gain during 2005.

Personal consumption surged 0.7% last month after an unrevised 0.5% gain during November and matched expectations. Last month's gain was helped by a 4.4% (-2.1% y/y) increase in unit auto sales. That lowered the year's gain in spending to 6.0% from 6.5% during 2005. Spending on nondurables grew 1.6% last month and 7.0% for the year but adjusted for higher prices nondurables spending grew just 0.6% in December and 3.8% last year. Real consumer spending rose 0.3% after a 0.5% November gain and grew 3.2% for the year, down from 3.5% during 2005.

The personal savings rate was a more negative -1.2% during December and in 2006 averaged -1.0%. Should the Decline in the Personal Saving Rate Be a Cause for Concern? from the Federal Reserve Bank of Kansas City is available here.

The PCE chain price index rose a firm 0.4% due to a 3.7% gain in gasoline prices which has since more than reversed. Prices less food & energy ticked up 0.1% after no change in November. The three month change in core prices fell to 1.7% (AR), the lowest since February.

Disposition of Personal Income December November Y/Y 2006 2005 2004
Personal Income 0.5% 0.3% 5.9% 6.4% 5.2% 6.2%
Personal Consumption 0.7% 0.5% 6.0% 6.0% 6.5% 6.6%
Savings Rate -1.2% -1.0% -0.3% (Dec. '05) -1.0% -0.4% 2.0%
PCE Chain Price Index 0.4% 0.0% 2.3% 2.8% 2.9% 2.6%
  Less food & energy 0.1% 0.0% 2.2% 2.2% 2.1% 2.0%
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