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Economy in Brief

U.S. Real Disposable Income Up 0.1%, Spending Flat, Core Price Gains Faster
by Tom Moeller February 29, 2008

Adjusted for prices, disposable personal income squeaked out a 0.1% gain last month. The weak rise followed a like increase in December but two months of decline preceding that. It left the three-month growth rate at a negative 0.7% (AR).

Nominal personal income slightly beat Consensus expectations last month with a 0.3% rise and three-month growth in income held steady at a 4.1% annual rate. Wage & salary income rose 0.5% (4.1% y/y) after firm gains during the two prior months. Factory sector wages, however, were flat (+0.6% y/y) while wage & salary income in the private service-providing industries rose 0.5% (4.7% y/y). Wages in the government sector rose a strong 0.9% (4.7% y/y).

Lower interest rates caused the forth straight monthly decline in interest income (+5.2% y/y). That y/y increase was less than one third the rate of gain at the end of 2005. Dividend income rose another firm 0.5% (11.9% y/y), a double digit rate of gain that is down somewhat from its peak 16.3% in 2006.

Weakness in income growth caught up with personal spending. During the last two months, real personal consumption expenditures have been flat. As a result the three-month growth rate held at 1.1%, its lowest since last May. Nominal spending grew 0.4% which was double the expected increase.

Real spending on discretionary items weakened substantially led by a 3.3% (-5.3% y/y) drop in motor vehicle & parts purchases. Real spending on household furniture & appliances also fell 0.4% (+4.4% y/y) for the second consecutive month of decline. Spending on apparel did post a 0.3% (0.1% y/y) in January but that followed four months of either having been unchanged or down, including a 1.9% downdraft during December.

Spending in the less discretionary area continued to show growth. Medical care spending rose 0.2% (2.7% y/y) and spending on transportation services rose 0.2% (3.1% y/y). Spending on food, however, fell 0.2% (+0.7% y/y) during January. These and other detailed spending figures are available in Haver's USNA database.

The PCE chain price index rose a firm 0.4% lifted by higher energy prices. That raised the y/y gain to 3.7%, the quickest since mid-2005. The rise in the core PCE price index was ahead of expectations. A 0.3% gain beat expectations for a 0.2% rise but, more significant, was an acceleration in the three month growth rate to 3.0% that was its fastest since late 2001 and up by half from last year.

Overview: Monetary Policy and the Economic Outlook from the Federal Reserve's Monetary Report to Congress can be found here.

Disposition of Personal Income January December Y/Y 2007 2006 2005
Personal Income 0.3% 0.5% 4.9% 6.1% 6.6% 5.9%
Personal Consumption 0.4% 0.3% 5.5% 5.5% 5.9% 6.2%
Saving Rate -0.1% -0.1% 0.6% (Jan. 07) 0.4% 0.4% 0.5%
PCE Chain Price Index 0.4% 0.3% 3.7% 2.6% 2.8% 2.9%
  Less food & energy 0.3% 0.2% 2.2% 2.1% 2.2% 2.2%
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