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Economy in Brief

U.S. September Income Rose, Spending Fell: Trend Growth of Both Down
by Tom Moeller October 31, 2008

During September nominal personal income rose 0.2%, just half the revised 0.4% August increase. Moreover, a slowing growth trend was evident in the y/y gain of 3.9% which was down sharply from last year's 6.1% rise and the 7.1% increase during 2006. The September increase in personal income exceeded Consensus expectations for a 0.1% rise.

Disposable personal income rose 0.2% last month after 1.0%-to-1.8% declines during the prior three months. They occurred due to the absence of tax rebate checks. Weaker job gains have slowed trend growth to 4.2% y/y after last year's rise of 5.5% and 6.4% during 2006.

Weaker gains in wage & salary income very much reflect the soft jobs environment. Wages rose 0.1% last month, up 3.4% y/y. Three month growth of 3.1% (AR) was considerably below the 9.8% rate of growth early last year. Factory sector wages fell 0.3% (+0.2% y/y) for the second consecutive monthly decline. On a three-month growth basis, wages fell at a 1.3% annual rate after 2.0% growth last year. Wages & salaries in the private service-providing industries ticked up 0.1% (3.6% y/y) and, here again, the trend growth of 3.0% is well below a 2006 gain of 6.4%. Wages in the government sector rose 0.4% (5.1% y/y) and three-month growth of 5.1% was stable.

Proprietors' income fell 0.3% (+1.8% y/y) after a 1.0% August decline. On a three-month basis, the 3.4% rate of negative growth very much reflects the weaker retail environment, after the 4.1% gain last year. Interest income rose 1.1% (-0.2% y/y) for the third straight month due to the recent rise in interest rates off their March lows. Dividend income fell 0.6% (+4.1% y/y) for the third consecutive month and prior months' gains were revised away. Growth of 4.1% y/y compares to a 12.4% rise last year and a 21.7% rise during 2006.

Personal consumption expenditures fell 0.3% after the unrevised sideways movement in August. Adjusted for price inflation, real spending fell 0.4% (-0.4% y/y) last month for the third decline in the last four months. Three-month growth in real spending dropped to negative 3.9% (AR) after the 2.8% gain last year. Real spending on motor vehicles fell at a 23.5% annual rate during the last three months while furniture spending fell at a 10.9% rate following an 8.0% gain last year. Spending on clothing fell at a 14.6% rate during the last three months after a 4.7% rise last year.

The PCE chain price index rose just 0.1% as a 0.7% decline (+31.5% y/y) in gasoline prices was offset by a 0.7% rise in food prices. On a three-month basis, food prices were up at a 9.1% rate after a 3.8% rise last year. The core PCE price index rose 0.2% for the second consecutive month but the rise surpassed Consensus expectations for a 0.1% uptick. Three-month growth of 2.6% was up from a 2.2% during all of last year. Apparel prices have been rising at a 6.6% rate after a 0.8% decline last year and transportation costs have been rising at a 5.2% rate after 2.7% growth last year.

The personal savings rate recovered to 1.3% as spending fell.

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

Disposition of Personal Income (%) September August Y/Y 2007 2006 2005
Personal Income 0.2 0.4 3.9 6.1 7.1 5.6
  Disposable Personal Income 0.2 -1.0 4.2 5.5 6.4 4.4
Personal Consumption -0.3 0.0 3.8 5.5 5.9 6.2
Saving Rate 1.3 0.8 0.6 (Sept. '07) 0.5 0.7 0.3
PCE Chain Price Index 0.1 0.0 4.2 2.6 2.8 2.9
  Less food & energy 0.2 0.2 2.4 2.2 2.3 2.1
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