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Economy in Brief

U.S. Personal Income & Spending Gains Are Disappointing
by Tom Moeller   November 01, 2010

Personal income slipped an unexpected 0.1% during September following a 0.4% August increase that was downwardly revised. A 0.2% increase had been expected for last month. The troubling part of the report was the slight dip in wage & salary income. The decline followed a modest 0.2% August increase which also was downwardly revised. Despite the latest weakening, y/y growth firmed to 2.0% versus recession-related declines last year. The government sector was the weakest segment of the monthly wage figure. A 0.4% drop (+0.5% y/y) was the fourth consecutive monthly decline; factory sector wages also fell by 0.2% (+2.4% y/y).

Adding to the September income disappointment was a sharp decline in unemployment insurance benefits (-18.8% y/y). It followed the extension of jobless insurance payouts during August. Also, lower rates caused interest income to fall 0.9% (-2.6% y/y) for the third consecutive month but dividend income remained strong (+6.6% y/y). All this added up to a 0.2% decline in disposable income. Also, since taxes have risen 4.1% versus last year when they were cut to stimulate the economy, growth in take-home pay is no better. Adjusting for prices disposable income fell 0.3% (1.6% y/y) during September.

Personal consumption expenditures rose 0.2% following two months of 0.5% increase. As a result of these increases, spending growth for the quarter improved slightly to 3.6% (AR). A 0.4% September increase had been expected. Some of the monthly disappointment was due to lower gasoline prices but apparel spending also ticked up just 0.1% (4.6% y/y). Also, spending on services rose just 0.1% (3.0% y/y), held back by a monthly decline in spending on utilities. Spending on durable goods rose 0.7% (8.1% y/y) with strength in motor vehicles. Adjusted for inflation, overall spending rose just 0.1% last month and 2.3% y/y.

Since spending exceeded income, the personal savings rate fell to 5.3% from a downwardly revised 5.6% in August. The latest is the lowest since March and is down from the 5.9% for all of last year. Nevertheless, the savings rate remained up from the monthly low of 1.8% late in 2007.

Price inflation remained modest. The PCE chain price index rose just 0.1% following two months of 0.2% increase. These gains followed three months of decline during Q2. The core PCE price deflator was unchanged for the first month since April. Twelve month growth of 1.2% was its weakest since the early1960s.

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

Why Have The Dynamics of Labor Productivity Changed? from the Federal Reserve Bank of Kansas City it available here.

Personal Income & Outlays (%) September August July Y/Y 2009 2008 2007
Personal Income -0.1 0.4 0.2 3.1 -1.7 4.0 5.7
  Wages & Salaries -0.0 0.2 0.4 2.0 -4.3 2.1 5.8
Disposable Personal Income -0.2 0.4 0.0 3.0 0.7 5.1 5.1
Personal Consumption Expenditures 0.2 0.5 0.5 3.7 -1.0 3.0 5.2
Saving Rate 5.3 5.6 5.7 5.7(Sept.'09) 5.9 4.1 2.1
PCE Chain Price Index 0.1 0.2 0.2 1.4 0.2 3.3 2.7
   Less Food & Energy 0.0 0.1 0.1 1.2 1.5 2.3 2.4
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