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Economy in Brief

U.S. Income & Spending Rose Moderately in April; Real Income Flat
by Tom Moeller May 30, 2008

Nominal personal income rose 0.2% last month after a 0.4% March increase which was revised up slightly from the initial report. The April rise matched Consensus expectations. Nevertheless, slower growth in payrolls slowed the rise in income to a three-month growth rate of 4.2% after the 6.2% increase during all of last year.

Disposable personal income also rose a moderate 0.2% during April. Adjusted for price inflation, however, real income fell just slightly after no change in March. As a result of this recent and earlier weakness, the 1.5% three-month growth rate in real DPI was roughly half of that during all of 2007.

The PCE chain price index matched expectations and increased 0.2% after a 0.3% rise in March. The core PCE price index also matched expectations and ticked up just 0.1%. That weakness was enough to lower the three-month growth in core prices to 1.8%, its weakest since the middle of last year. Easier gains have been registered for goods prices but services prices have grown at a firmer 3.7% annual rate during the last three months.

Wage & salary income fell 0.2% (+4.4% y/y) after a 0.5% March increase. As a result of the April decline the three-month growth in wages fell to 2.5%, half of last year's growth and still well reduced from the 10% rate of growth early in 2007 and late in 2006. Factory sector wages fell 0.7% (+1.1% y/y) and the decline reversed all of the gains during the prior three months. Wages & salaries in the private service-providing industries fell as well in April but remained relatively strong versus the goods producing sector. A 0.2% April drop (+5.1% y/y) pulled three-month growth to 3.2% or half the gain during 2007. Wages in the government sector rose 0.3% (4.9% y/y) for the second straight month and three-month growth of 4.5% was equal to last year's increase but it was down from the 7.3% growth during 1Q.

Interest income rose a modest 0.1% after lower interest rates had caused interest income to be flat or unchanged (+2.2% y/y) during the prior six months. That rise is down from 5% to 14% growth during each of the prior three years. Dividend income rose another firm 0.5% (10.3% y/y) and, again, a three-month gain of 7.2% is half, or more than half, the rates of growth during the prior four years.

Personal consumption expenditures rose just 0.2% last month or half the gain during March. Adjusted for price inflation, real spending fell just slightly in April and it has grown at a 0.1% annual rate during the last three months. That's after 2.9% growth in 2007 and much less than the 3.0% growth in each of the prior two years.

Real spending on discretionary items was mixed. Motor vehicle & parts purchases fell 2.3% last month and three-month growth plummeted further to -15.3%. In a reversal, real spending on household furniture & appliances surged 1.9%. That was the strongest increase since early 2006. Real spending on apparel grew another 0.5% and three-month growth held firm at 9.0%. These and other detailed spending figures are available in Haver's USNA database.

The personal savings rate improved slightly from the prior three year's average to 0.7%.

Disposition of Personal Income (%) April March Y/Y 2007 2006 2005
Personal Income 0.2 0.4 4.8 6.2 6.6 5.9
  Disposable Personal Income 0.2 0.3 5.0 5.7 5.9 4.7
Personal Consumption 0.2 0.4 4.8% 5.5 5.9 6.2
Saving Rate 0.7 0.7 0.4 (April '07) 0.5 0.4 0.5
PCE Chain Price Index 0.2 0.3 3.2 2.5 2.8 2.9
  Less food & energy 0.1 0.2 2.1 2.1 2.2 2.2
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