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Economy in Brief

U.S. Personal Income Slips Marginally And Spending Declines
by Tom Moeller October 30, 2009

The weak job market continued last month to exact its toll on labor income growth. Personal income slipped marginally during September after two months of just 0.1% increase. The August gain was revised down from 0.2% and the latest figure about matched Consensus forecasts. These weak increases wholly reflect the current recession. The good news, however, was that the worst performance of early this year is over. On a three-month basis income grew 0.2% during 3Q after a 0.4% 2Q gain. These figures compare to 2.6% and 0.9% declines during 1Q and 4Q'08, respectively.

Job loss continued to account for recent weakness in income growth, but here again the recent numbers are "less bad." Wages & salaries fell 0.2% last month and reversed a 0.2% August increase. Year-to-year wages fell 5.2% after a 2.1% 2008 increase. Downward momentum, however, has eased. During the last three months, wages were roughly unchanged with the lessened rate of job loss reported in the monthly reports on payroll employment. Wages in the factory sector fell 0.2% following the 0.6% August drop. Yet, the three-month change fell to -0.1% from -2.7% and -6.9% during 2Q and 1Q. In the service sector wages slipped 0.1% last month but posted a modest increase during 3Q after declines during the prior three quarters. Offsetting this improvement has been a weaker government sector where wages ticked up just 0.4% during the last three months after 1.1% and 1.6% increases during the prior twp three-month periods.

Even the growth in unemployment insurance payments slowed recently. A 2.7% September decline was part of a 3Q slowing to 0.9% growth from gains between 20%29 and 65% during each of the prior four quarters. Interest income continued to show the effects of lower rates and fell for the third straight month while dividend income fell by one-quarter versus last year as corporate profits evaporated.

Disposable personal income fell slightly and reversed the August uptick. Adjusted for inflation, real disposable income fell for the fourth straight month after having been lifted this spring by tax cuts. The saving rate increased modestly m/m to 3.3% but remained down from the May peak of 5.9%. The rate remained up slightly from last year and double the 2007 level.

Personal spending fell 0.5% after having been lifted during August by the "cash for clunkers" program for new motor vehicle purchases. Durables spending more-than reversed the August rise with a 7.0% decline (-4.2% y/y). Spending on motor vehicles fell 19.5% (-5.9% y/y) and reversed all of the August gain. Spending on furniture rose a modest 0.4% (-4.7% y/y) and has risen slightly during the last three months. Spending on nondurables rose 0.7% (-3.7% y/y) as outlays on apparel rose for the third straight month (-1.7% y/y). Outlays on services increased 0.2% (1.5% y/y) as spending on health care continued quite strong and posted a 5.6% gain versus last year. Spending in restaurants and on recreation remained negative.

Prices increased 0.1% during September reflecting an easier 1.2% rise (-29.8% y/y) rise in gasoline costs and another rise is in store for October. Nevertheless, the PCE chain price index still was down by 0.5% versus last year. Less food-and-energy, "core" prices were again soft and posted their fifth consecutive 0.1% increase. Goods prices rose 0.2% (-1.7% y/y) after two months of decline while prices for services gained a steady 1.0% y/y.

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

Regulatory reform is the title of yesterday's speech by Fed Governor Daniel K. Tarullo and it can be found here.

Disposition of Personal Income (%)  September August July Y/Y 2008 2007
Personal Income -0.0 0.1 0.1 -2.8 2.9 5.6
  Disposable Personal Income -0.0 0.1 -0.1 0.5 3.9 4.9
Personal Consumption Expenditures -0.5 1.4 0.2 -0.3 3.1 5.4
Saving Rate 3.3 2.8 4.0 2.2 (Sept. '08) 2.6 1.7
PCE Chain Price Index 0.1 0.3 0.0 -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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