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Economy in Brief

U.S. Disposable Personal Income & Spending Continue Firm
by Tom Moeller December 23, 2009

Tax breaks continued to spur growth in disposable personal income. Last month's 0.5% gain followed an upwardly revised 0.5% October increase. A decline in tax payments (-25.7% y/y), which began early in 2008, helped spur y/y disposable income growth to 3.1%. Adjusted for a 0.2% (1.5% y/y) rise in the chain price index, real disposable income rose 0.2% (1.5% y/y) for the third consecutive month.

Personal spending rose 0.5% after a 0.6% October increase which was double the initial estimate. The rise fell short of the 0.7% increase which was the Consensus expectation. Durables spending jumped 1.1% (2.5% y/y) as spending on motor vehicles gained another 2.2% (7.9% y/y) following a 9.5% October surge. Spending on other durables, however, remained lackluster. Furniture & appliance purchases fell slightly for the second month and were off 2.9% y/y. Spending on nondurables increased 1.5% (4.6% y/y) as outlays on gasoline jumped 7.2% (18.6% y/y) with higher prices. In constant dollars gasoline outlays rose just 0.9% and were down slightly y/y. Spending on clothing slipped 0.3% (-1.1% y/y) though that y/y change is improved from 6.8% decline at the worst of the recent recession. Outlays on services were unchanged (1.5% y/y). Spending on health care rose 0.4% (4.8% y/y) but housing & utilities spending fell 0.4% (+0.2% y/y).

As a result of tax cuts and moderate spending, the savings rate held steady at the upwardly revised 4.7% October level. The rate has risen sharply from near 1.0% at the beginning of last year.

Overall personal income gained 0.4% during November after an upwardly revised 0.3% October increase. The latest figure fell short of Consensus expectations for a 0.5% rise. Wages & salaries rose 0.3% due to the pickup in average hourly earnings reported with the jobs numbers. Nevertheless, year-to-year growth in wages continued negative (-2.8% y/y), only slightly improved from the worst y/y growth of this cycle. Wages in the factory sector rose 0.2% (-10.4% y/y) after a 0.4% October decline. In the service sector wages rose a firmer 0.4% (-1.7% y/y). Though wages in the government sector only ticked up 0.1% last month, the 2.9% y/y gain easily outpaced the 4.1% decline in private sector earnings.

Growth in unemployment insurance payments slowed further as joblessness fell. In fact, moderate declines during the last two months compare with the y/y doubling earlier this year. Interest income rose 0.2% (-4.6% y/y) as the decline in rates found a bottom while another 0.9% m/m  increase in dividend income nevertheless left it down 18.0% y/y with the weaker economy.

The PCE chain price index increased a moderate 0.2% during November led by a 6.2% (18,5% y/y) increase in gasoline costs. Less food-and-energy, "core" prices were unchanged. Prices for durable goods were off 0.1% (-1.1% y/y) as home furnishing prices fell 0.5% (-2.1% y/y) and apparel prices also fell 0.5% (+0.8% y/y). Prices for services gained a steady 1.2% y/y.

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

Disposition of Personal Income (%)  November October September Y/Y 2008 2007
Personal Income 0.4 0.3 0.3 -0.3 2.9 5.6
   Disposable Personal Income 0.5 0.5 0.3 3.1 3.9 4.9
Personal Consumption Expenditures 0.5 0.6 -0.6 2.3 3.1 5.4
Saving Rate 4.7 4.7 4.8 3.8 (Nov.'08) 2.6 1.7
PCE Chain Price Index 0.2 0.3 0.1 1.5 3.3 2.7
   Less food & energy 0.0 0.2 0.1 1.4 2.4 2.4
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