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Economy in Brief

U.S. Personal Income Grows Modestly; PCE Raised By "Cash-for-Clunkers"
by Tom Moeller October 1, 2009

Personal income in August continued to increase at its modest July rate. The 0.2% rise  followed a 0.2% gain which was revised from 0.1%. Consensus forecasts were for a 0.1% uptick. These weak increases wholly reflect the current recession. Year-to-year income growth fell 2.6% during the last twelve months after a 2.9% increase last year.

The dismal job market accounts for this year's negative income growth. Wages & salaries rose modestly m/m during July and August. However, these latest gains were not enough to lift wages yr-to-yr which fell 5.2% after a 2.1% 2008 increase. Wages in the factory sector fell 11.6% y/y while service sector wages fell 5.4%. To a limited extent these declines were offset by a 3.6% increase in government sector earnings.

Unemployment insurance payments picked up just some of the slack in the job market and rose 4.4% during August. That lifted payments to $136.9B versus $60.4B during August of last year. Interest income continued to show the effects of lower rates and fell 6.9% y/y while dividend income fell by one-quarter as corporate profits dried up.

Disposable personal income increased just 0.1% following a slight decline during July. Adjusted for inflation, real disposable income slipped for the third straight month, although only by 0.2% during August and by 0.1% in July. Real disposable income growth of 1.3% y/y was lifted by tax cuts earlier this year. The saving rate fell again with the weakness in income growth. The decline to 3.0% contrasted with a May peak of 5.9%. Nevertheless, the rate remained up slightly from last year and double the 2007 level.

Personal spending showed the full effect of the "cash-for-clunkers" program for new motor vehicle purchases. It lifted durables spending by 5.3% (-1.3% y/y) with a 13.3% gain (6.6% y/y) for autos. Spending on nondurables rose just 2.3% (-5.3% y/y) as outlays on apparel continued down by 3.8% versus last year. Spending on furniture continued quite weak and fell 7.7% versus last year. Outlays on services increased 0.4% (1.7% y/y) as spending on health care continued quite strong and posted a 5.2% gain versus last year. Spending in restaurants and on recreation remained negative.

Prices increased 0.3% during August reflecting an 8.4% rise (-30.5% y/y) in gasoline costs and another rise is in store for September. Nevertheless, the PCE chain price index still was down by 0.5% versus last year. Less food-and-energy, "core" prices were again quite tame and posted their fourth consecutive 0.1% increase. Goods prices rose 0.7% (-3.6% y/y while prices for services increased just 1.0% y/y.

The personal income & consumption figures are available in Haver's USECON and USNA databases.

Yesterday's speech titled Central Bank Exit Policies by Vice Chairman Donald L. Kohn can be found here.

Disposition of Personal Income (%)  August July June Y/Y 2008 2007
Personal Income 0.2 0.2 -1.1 -2.6 2.9 5.6
  Disposable Personal Income 0.1 -0.0 -1.1 0.8 3.9 4.9
Personal Consumption Expenditures 1.3 0.3 0.7 -0.3 3.1 5.4
Saving Rate 3.0 4.0 4.2 1.7 (Aug. '08) 2.6 1.7
PCE Chain Price Index 0.3 0.0 0.5 -0.5 3.3 2.7
  Less food & energy 0.1 0.1 0.1 1.3 2.4 2.4
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