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Economy in Brief

U.S. Personal Income Rise of 0.3% Missed Expectations
by Tom Moeller September 28, 2007

Personal income rose 0.3% in August after an unrevised 0.5% July increase. The latest rise lagged Consensus forecasts for a 0.4% gain and it was the weakest monthly increase since April.

Much of the weakness in last month's income gain was due to a modest rise in wages & salaries of just 0.2% (7.1% y/y) and it also was the weakest since April. Factory sector wages fell 0.1% (6.2% y/y) after a downwardly revised 0.1% July uptick.Wage & salary income in the service-producing industries also was weak and rose 0.3% (8.2% y/y) following the downwardly revised 0.5% July increase. Wages in the government sector rose 0.2% (4.0% y/y).

Interest income grew 0.7% (4.4% y/y), stronger with the rise in interest rates, and dividend income popped another 1.0% (13.7% y/y).

Personal current taxes rose just 0.2% but much stronger growth earlier this year pulled the y/y gain to a strong 10.8%. As a result, disposable personal income grew 0.4% (6.2% y/y), a bit below the increase in overall income, after a 0.6% July gain. Real disposable personal income rose 0.4% last month (4.4% y/y).

Personal consumption expenditures gained 0.6% last month. The increase was ahead of expectations for a 0.4% rise and was ahead of an unrevised 0.4% July gain. Durable goods purchases surged 2.4% (4.3% y/y) on the strength of a 5.4% (3.1% y/y) jump in motor vehicle outlays. Spending on furniture & other household equipment rose 0.8% (4.2% y/y) and July's increase was doubled to 1.0%. Spending on household operation jumped 2.1% (6.6% y/y) on the strength of a 4.2% (8.1% y/y) spike in electricity & gas costs. Outlays on gasoline continued to offset some of these increases with a 6.5% (-8.4% y/y) drop. Spending on apparel rose 0.5% (5.0% y/y), well below the pace of an upwardly revised 1.3% July spike, while outlays on medical care rose a steady 0.4% (6.2% y/y).

The PCE chain price index in August fell 0.1%, the first monthly decline since last October. The core PCE price index was steady at a 0.1% pace, where it has been for six months. Some of the decline in gasoline prices, which has been dampening the PCE price measure, is probably about to reverse direction with the rise in crude oil prices above $80 per barrel. However another source of price strength has been the rise in food prices, up 0.4% (4.0% y/y) in August and the annualized rate of increase so far this year is 5.4%.

The personal saving rate of 0.7% last month was fairly steady. That low figure compares to the flow of funds measure from the Federal Reserve which pegs households' net worth at nearly six times income due to the rise in real estate prices.

Can Social Security Survive the Baby Boomers? from the Federal reserve Bank of St. Louis can be found here.

Disposition of Personal Income August July Y/Y 2006 2005 2004
Personal Income 0.3% 0.5% 6.8% 6.6% 5.9% 6.2%
Personal Consumption 0.6% 0.4% 5.2% 5.9% 6.2% 6.4%
Saving Rate 0.7% 0.9% -0.1% (Aug. 06) 0.4% 0.5% 2.1%
PCE Chain Price Index -0.1% 0.1% 1.8% 2.8% 2.9% 2.6%
  Less food & energy 0.1% 0.1% 1.8% 2.2% 2.2% 2.1%
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