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Economy in Brief

U.S. Income Surged Due to Stimulus Payment
by Tom Moeller June 27, 2008

Nominal personal income surged 1.9% during May as the government's tax rebate checks began to be mailed out. The gain by far exceeded Consensus expectations for a 0.4% increase, although excluding rebates income rose just 0.4%.

Disposable personal income also surged. The 5.7% month-to-month jump lifted the three-month growth rate to 28.2% (AR), the fastest since early-1975.

Wage & salary income rose a lesser 0.3% (4.6% y/y) after a 0.1% decline during April. As a result of weakness in the monthly gains, the annualized three-month growth in wages amounted to just 2.7% versus a 5.8% rise during all of last year. Factory sector wages rose 0.1% (1.8% y/y) after a downwardly revised 0.4% April decline. Wages & salaries in the private service-providing industries rose 0.3% (+5.2% y/y) after a slight 0.1% dip in April. Wages in the government sector rose 0.3% (5.1% y/y) but three-month growth fell to 4.1%.

Interest income fell 0.3% (+0.1% y/y) for the eighth straight month of decline. The flat reading for y/y growth follows 5% to 14% growth during each of the prior three years. Dividend income rose a firm 0.6% (9.7% y/y) but here too growth is well below that of the prior four years.

The PCE chain price index doubled expectations with a 0.4% increase, driven by a 0.8% rise in nondurables (energy) prices. The core PCE price index, however, fell short of Consensus forecasts and rose just 0.1%. That continued weakness left the three-month growth in core prices at 1.8%, its weakest since the middle of last year. Easier or stable gains have been registered for goods prices, however, services prices grew at a firmer 4.0% annual rate during the last three months, nearly double the growth at the middle of last year.

Personal consumption expenditures surged 0.8% last month, driven higher by the rise in gasoline prices. Adjusted for price inflation, real spending still was firm and rose 0.4%, the strongest increase since August of last year. The gain lifted the three-month rate of increase to 3.1% (AR).

Though annualized growth in spending on motor vehicles was negative over the last three months, spending elsewhere strengthened. Real spending on furniture soared at a 15.4% rate, apparel spending jumped at a 10.5% rate and real growth in spending on gasoline & oil (if you can believe it) jumped at a 14.5% rate. Recreation spending also grew at an accelerated 4.4% during the last three months. These and other detailed spending figures are available in Haver's USNA database.

The personal savings rate surged to 5.0% as a result of the rebate checks not having all been spent.

Disposition of Personal Income (%) May April Y/Y 2007 2006 2005
Personal Income 1.9 0.3 6.4 6.2 6.6 5.9
  Disposable Personal Income 5.7 0.4 10.7 5.7 5.9 4.7
Personal Consumption 0.8 0.4 5.4% 5.5 5.9 6.2
Saving Rate 5.0 0.4 0.2 (May '07) 0.5 0.4 0.5
PCE Chain Price Index 0.4 0.2 3.1 2.5 2.8 2.9
  Less food & energy 0.1 0.1 2.1 2.1 2.2 2.2
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