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Economy in Brief

U.S. Personal Income & Spending Firm While Savings Improves
by Tom Moeller   November 24, 2010

Personal income may be finally on the mend. Overall income recovered 0.5% last month after a September dip and a 0.5% August gain, both of which were slightly higher than reported last month. A 0.4% gain last month had been expected. The catalysts for the October income gain was an improved 0.6% increase in wages & salaries (3.4% y/y), a 0.9% rise (5.7% y/y) in proprietors income and a 1.0% jump (-1.0% y/y) in interest income. These gains offset a 0.6% decline in dividend income though it remained up a firm 6.1% from last year. Also to the downside was a 4.1% drop (-5.9% y/y) in unemployment insurance benefits (-18.8% y/y). The latest drop is part of the downdraft  following the extension of jobless insurance payouts during August. These pieces added up to a 0.4% increase in disposable income which, when adjusted for prices, rose 0.3%. The y/y gain of 2.5% in real disposable income was the strongest since 2008 when a tax cut stimulated a jump.

Personal consumption expenditures rose 0.4% last month after an upwardly revised 0.3% September gain. A 0.5% October increase had been expected. Spending on goods jumped 1.1% (5.7% y/y) due to a 3.6% surge (7.5% y/y) in spending on gasoline thanks to higher prices. Spending on motor vehicles also jumped 4.5% (14.3% y/y). Elsewhere, spending on goods generally firmed as well. Spending on services inched up 0.1% (2.6% y/y) for the second consecutive month.

The personal savings rate rose to 5.7% from an upwardly revised 5.6% in September. The savings rate remained down from the 5.9% level for all of last year though it remained up from the monthly low of 1.8% late in 2007.

Price inflation remained modest. The PCE chain price index rose 0.2% after September's 0.1% uptick. The core PCE price deflator was unchanged for the second consecutive month. The declines resulted from lower monthly prices for autos (+2.8% y/y), furniture (-4.0% y/y) and apparel (-1.5% y/y). Twelve month growth of 1.3% in prices overall was the weakest since the early1960s.

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

The Federal Reserve cut its expectations for growth in output and employment. The minutes to the latest FOMC meeting can be found here.

Personal Income & Outlays (%) October September August Y/Y 2009 2008 2007
Personal Income 0.5 -0.0 0.5 4.1 -1.7 4.0 5.7
  Wages & Salaries 0.6 0.1 0.3 3.4 -4.3 2.1 5.8
Disposable Personal Income 0.4 -0.1 0.5 3.8 0.7 5.1 5.1
Personal Consumption Expenditures 0.4 0.3 0.5 3.6 -1.0 3.0 5.2
Saving Rate 5.7 5.6 5.9 5.3 (Oct.'09) 5.9 4.1 2.1
PCE Chain Price Index 0.2 0.1 0.2 1.3 0.2 3.3 2.7
   Less Food & Energy 0.0 0.0 0.1 0.9 1.5 2.3 2.4
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