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Economy in Brief

U.S. Personal Income Boosted by Bonuses; Core Prices Pick Up to 0.3%
by Carol Stone March 1, 2007

Personal income surged by a full 1% in January, following unrevised gains of 0.5% and 0.3% in December and November, respectively. Consensus expectations had envisioned a 0.3% increase. Income was 5.3% ahead of January 2006.

Wages & salaries jumped 1.2% (5.0% y/y). Factory sector wages turned down 0.3%, reversing December's 0.4% increase; wages in this sector are now down from a year ago, by 0.6%. Wage and salary income in the private service-producing industries gained 1.6% in January (6.1% y/y) after 0.8% in December. Large bonuses and the exercise of stock options caused the outsized January increase. The annual federal government pay increase also added to total wages.

Interest income advanced 0.8% in January, offsetting part of three consecutive monthly declines of 0.4%. Dividend income rose 0.9% in the month and is 12.0% higher than in January 2006.

Personal current taxes increased 2.5% (8.7% y/y). Disposable personal income advanced 0.8% (4.8% y/y), better than the 0.5% increase during December. Real disposable personal income rose 0.8% (2.5% y/y) last month.

Personal consumption increased 0.5% in January after an unrevised 0.7% gain in December and was marginally above expectations for 0.4%. Spending for motor vehicles, clothing, other nondurables and medical care rose noticeably. The return of colder weather pushed up outlays for home heating, but falling gasoline prices brought some offset to December's huge rise in gasoline outlays. In real terms, consumer spending rose 0.3% following increases of 0.4% in both December and November.

The personal saving rate was -1.2% in January, marginally better than December's -1.4%, a downward revision.

The increase in the PCE chain price index slowed to 0.2% in January from 0.3% in December. This overall PCE price gauge was up 2.0% from a year ago. Prices less food & energy were up 0.3% after 0.1% rises in December and November. The three-month change in core prices remained low at 1.8% (annualized), and December's value was revised to 1.5% from 1.7% reported before.

Disposition of Personal Income Jan 2007 Dec 2006 Nov 2006 Y/Y 2006 2005 2004
Personal Income 1.0% 0.5% 0.3% 5.3% 6.4% 5.2% 6.2%
Personal Consumption 0.5% 0.7% 0.4% 5.5% 6.0% 6.5% 6.6%
Saving Rate -1.2% -1.4% -1.1% -0.3% (Jan 06) -1.1% -0.4% 2.0%
PCE Chain Price Index 0.2% 0.3% 0.0% 2.0% 2.8% 2.9% 2.6%
  Less food & energy 0.3% 0.1% 0.0% 2.3% 2.2% 2.1% 2.0%
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