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Economy in Brief

U.S. Income Fell Without the Stimulus Checks
by Tom Moeller August 29, 2008

Nominal personal income fell 0.7% in July after gains of 0.1% and 1.8% during the prior two months. Those increases were lifted by $90B from the government's tax rebate checks. The June drop in personal income exceeded Consensus expectations for a 0.2% decline.

Disposable personal income fell 1.1% last month following a 1.9% decline during June and a 5.7% jump during May. Net taxes increased 1.8% last month, due to the absence of rebates, after an 18.7% June jump.

Wage & salary income increased a modest 0.3% (4.1% y/y) after a 0.2% rise during June. These increases left the annualized three-month growth in wages low at 3.2% versus a 5.6% increase during 2007 and a 6.3% 2006 gain. Factory sector wages ticked up 0.1% (1.1% y/y) and three-month growth totaled 2.1%. Wages & salaries in the private service-providing industries increased 0.2% (4.3% y/y) while three-month growth amounted to 2.6% after last year's gain of 6.4%. Wages in the government sector were firm again and rose 0.4% (5.5% y/y) rise and three-month growth rose to 5.8%.

Interest income jumped 1.1% (-1.7% y/y) and made up the prior month's decline. Interest income rose 7.9% during all of 2007. Dividend income rose 0.6% (8.2% y/y) for the third consecutive month. That followed a 12.4% rise last year and a 21.7% gain during 2006.

The PCE chain price index was strong again and rose 0.6%, firm due to higher energy prices. The gain in the core PCE price index also remained firm with a 0.3% increase. That matched Consensus forecasts but three-month growth increased to 2.8%, the firmest growth rate since early 2006. Durable goods prices ticked up 0.1% (-1.0% y/y) for the second month. Last month's small increase was held back by a 0.2% decline in furniture prices (-4.4% y/y). Prices for nondurable goods, however, were quite firm and they posted 1.2% gain (8.2% y/y). Apparel prices also were firm and they rose 0.1% y/y after the 2.2% rate of deflation reached this past March. Services prices jumped 0.4% (3.8% y/y) led higher by a 4.1% (15.2% y/y) jump in electricity costs.

Personal consumption expenditures ticked up 0.2% after the 0.6% rise during June. Adjusted for price inflation, however, real spending fell another 0.4% after a 0.1% downtick during June. Three-month growth in real spending amounted to a negative 0.7% (AR) with real spending on motor vehicles down at a 25.2% rate. Furniture spending rose at a 6.0% rate during the last three months but spending on clothing fell at a 5.2% rate.

The personal savings rate halved to 1.2% from 2.5% in June and 4.9% in May.

The figures noted above are available in the Haver USECON and in the USNA databases.

Disposition of Personal Income (%) July June Y/Y 2007 2006 2005
Personal Income -0.7 0.1 4.2 6.1 7.1 5.6
  Disposable Personal Income -1.1 -1.9 5.8 5.5 6.4 4.4
Personal Consumption 0.2 0.6 5.3 5.5 5.9 6.2
Saving Rate 1.2 2.5 0.3 (July '07) 0.5 0.7 0.3
PCE Chain Price Index 0.6 0.7 4.5 2.6 2.8 2.9
  Less food & energy 0.3 0.3 2.4 2.2 2.3 2.1
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