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Economy in Brief

U.S. Personal Income & Spending In Record Decline Last Year
by Tom Moeller February 1, 2010

The Commerce Department's latest report on consumer income & spending indicated that times were never worse than in 2009. Cutbacks in employment prompted a record 1.4% annual decline (it's never before fallen y/y), though modest positive growth returned in the second half. Indeed, income rose during December about as it did beginning in the spring due to easing declines in employment, faster growth in dividend income and rising transfer payments.  

Overall personal income gained 0.4% during December after an upwardly revised 0.5% November increase. The latest figure outpaced Consensus expectations for a 0.3% rise. Wages & salaries ticked up 0.1% after an upwardly revised 0.4% November increase but for the year wage income fell by 3.3% due to fewer jobs and pay cuts. Wages in the factory sector fell 0.3% and were down a hard 10.3% for the year. That decline followed a 1.5% drop during 2008. In the service sector wages rose a firmer 0.3% but were down an unprecedented 2.9% for the year. A 0.3% December rise in wages in the government sector and a 3.6% gain for the full year offset a negligible portion of these private sector declines. 

Disposable income rose a steady 0.4% during December and for the year rose 1.5% due to tax cuts early in the year. These cuts enabled the savings rate to rise to 4.8% which was near where it began the year but up sharply from the 1.0% low at the beginning of 2008. 

Due to the pickup in corporate profitability in the second half of last year monthly dividend income began to grow. However, earlier declines which extended back to 2007 pulled the full-year figure down 19.2%. Offsetting some of the annual decline were unemployment insurance payments which more than doubled for the year as a whole. However, that growth turned negative by yearend as long-term unemployment exhausted benefit claims.

Personal spending ticked up just 0.2% in December after an upwardly revised 0.7% November increase. For the year spending fell an unprecedented 0.4%. Adjusted for inflation the yearly decline mounted to 0.6% which was the second year of negative growth. Pulling down the yearly figures were 8.8% and 13.6% declines in real spending on motor vehicles. Adding to that were 6.0% and 2.9% drops in furniture & household durables as well as less spending on clothing. Spending on services was roughly unchanged as spending on recreation fell 1.3% while  fewer meals out & fewer vacations lowered spending here by 2.9%. These declines were unprecedented.

The PCE chain price index ticked up just 0.1% during December and 0.2% for the year pulled down by the fourth year of decline in prices for furnishings & household durables. Higher gasoline prices through much of the year failed to offset declines late in 2008 so for 2009 prices fell roughly one-quarter from 2008. The core PCE price deflator ticked up just 0.1% during December and the 0.2% gain for the year was a record low. 

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

Disposition of Personal Income (%)  December November October Y/Y 2009 2008 2007
Personal Income 0.4 0.5 0.3 0.5 -1.4 2.9 5.6
   Disposable Personal Income 0.4 0.5 0.4 3.7 1.5 3.9 4.9
Personal Consumption Expenditures 0.2 0.7 0.6 4.0 -0.4 3.1 5.4
Saving Rate 4.8 4.5 4.6 4.7 (Dec.'08) 4.6 2.6 1.7
PCE Chain Price Index 0.1 0.3 0.3 2.1 0.2 3.3 2.7
   Less food & energy 0.1 0.0 0.2 1.5 1.5 2.4 2.4

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