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Economy in Brief

U.S. Income Recovered, Spending Was Unchanged
by Tom Moeller September 29, 2008

Nominal personal income recovered 0.5% during August. The increase followed a revised July decline of 0.6% after two months of gains boosted by $90B of government tax rebate checks. The August increase in personal income exceeded Consensus expectations for a 0.2% rise.

Disposable personal income fell 0.9% last month after a 0.8% July drop, because net taxes jumped 11.1% (3.3% y/y) in the absence of rebate checks.

Wage & salary income increased 0.4% (4.2% y/y) after a 0.3% rise during July. The annualized three-month growth in wages recovered to 4.0%, it's fastest since December, but that was down from a 5.6% increase during 2007 and a 6.3% 2006 gain. Factory sector wages fell 0.2% (+1.1% y/y) and three-month growth ticked lower to 0.7%. Wages & salaries in the private service-providing industries increased 0.5% (4.5% y/y) while three-month growth totaled 3.8%. That was a deceleration from last year's gain of 6.4%. Wages in the government sector rose 0.3% (5.1% y/y) and three-month growth amounted to 4.6%.

Interest income jumped another 1.2% (-0.1% y/y) following a 7.9% rise during all of 2007. Dividend income increased 0.6% (8.0% y/y) for the fourth consecutive month. Gains have decelerated after rising 12.4% last year and by 21.7% during 2006.

Personal consumption expenditures was unchanged after the downwardly revised 0.1% July uptick. Adjusted for price inflation real spending also was unchanged last month but three-month growth in real spending dropped to negative 2.9% (AR) with real spending on motor vehicles down at a 19.7% rate during the last three months. Furniture spending fell 0.6% last month for the third consecutive monthly decline. Spending on clothing fell 1.2% and at a 13.1% rate during the last three months.

The PCE chain price index was unchanged as energy prices fell. Food prices, which have been notably strong, rose 0.6% (5.9% y/y) and at an 8.9% rate over the last three months. The core PCE price index increased a modest 0.2% and matched Consensus expectations. Three-month growth, however, rose to 3.3%. That was it's fastest rate of increase since late 2001. Apparel prices also were firm and posted a 0.7% (1.3% y/y) increase after the 2.2% rate of deflation reached this past March. Services prices rose 0.2% (3.8% y/y) as transportation costs rose 0.4% (5.5% y/y).

The personal savings rate halved to 1.0% from 1.9% in July, though that was up from a 0.5% saving rate last year.

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

Today's announcement by Fed Chairman Ben S. Bernanke can be found here.

Disposition of Personal Income (%) August July Y/Y 2007 2006 2005
Personal Income 0.5 -0.6 4.6 6.1 7.1 5.6
  Disposable Personal Income -0.9 -0.8 4.8 5.5 6.4 4.4
Personal Consumption 0.0 0.1 4.6 5.5 5.9 6.2
Saving Rate 1.0 1.9 0.4 (Aug. '07) 0.5 0.7 0.3
PCE Chain Price Index 0.0 0.6 4.5 2.6 2.8 2.9
  Less food & energy 0.2 0.3 2.6 2.2 2.3 2.1
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