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Economy in Brief

U.S. Personal Income & Spending Improve During 2010
by Tom Moeller  January 31, 2011

Personal income turned the corner last year into positive territory. For the full year, the pickup in income growth to 3.0% from -1.7% reflected positive growth in hourly earnings, a lessened decline in employment and growth in proprietors' income. Last month, income grew an expected 0.4% following an unrevised 0.4% November rise. Private sector wage income grew 0.3%. For the full year, wages grew 2.3% but December-to-December there was a quicker acceleration to 4.1%. Still reflecting job cutbacks, modest growth in government sector wages of 1.2% for the year was the lowest since the series began in 1960. Disposable personal income rose 0.4% last month. It was up a moderate 3.1% for the full year, accelerated from 0.7% in 2009.

Proprietors' income grew 0.7% last month, the same as in November. It rose 4.3% for the full year, reversing the 8.2% decline in 2007. Economic improvement also raised dividend income by 1.1% last month, and 2.2% for 2010 following the 12.2% drop in 2009. Higher interest rates boosted December interest income by 1.1% after a like gain during the prior two months. Nevertheless, interest income fell 2.3% for the year after a 7.0% decline during 2009.

More income generated more spending in 2010. Personal consumption expenditures rose 0.7% last month, up from a 0.3% November gain, initially reported as 0.4%. A 0.5% December increase had been expected. For the year, spending grew 3.5% following a 1.0% 2009 decline. Spending on goods rose 0.7%, 6.1% for the full year, as gasoline expenditures surged 18.0% in 2010 with higher prices. Constant dollar gasoline expenditures fell 0.2% for the whole year. Spending on apparel (4.9% y/y) and furniture (4.2% y/y) both improved along with spending on motor vehicles (8.0%). Spending on services rose a modest 2.3% y/y.

The personal savings rate slipped to 5.3% from an upwardly revised 5.5% in November. The latest rates remained down from 5.8% for all of last year which was constant with 2009. However, these rates remained up from the monthly low of 1.8% late in 2007.

Price inflation remained modest. The PCE chain price index rose 0.3% last month after a 0.1% November rise. For all of the year, prices rose an accelerated 1.2% Dec/Dec but 1.7% for the whole year with higher energy costs. Food prices rose just 0.4% for the year, down from a 1.3% increase in 2009. The core PCE price deflator was unchanged last month versus an expected 0.1% uptick. The 1.3% increase for the year was a record low.

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

Yield Curve and Predicted GDP Growth from the Federal Reserve Bank of Cleveland can be found here.

Personal Income & Outlays (%) Dec. Nov. Oct. Y/Y 2010 2009 2008
Personal Income 0.4 0.3 0.4 3.8 3.0 -1.7 4.0
  Wages & Salaries 0.3 0.1 0.6 3.5 2.1 -4.3 2.1
Disposable Personal Income 0.4 0.3 0.4 3.4 3.1 0.7 5.1
Personal Consumption Expenditures 0.7 0.3 0.7 4.1 3.5 -1.0 3.0
Saving Rate 5.3 5.5 5.5 5.8
(Dec.'09)
5.8 5.9 4.1
PCE Chain Price Index 0.3 0.1 0.2 1.2 1.7 0.2 3.3
  Less Food & Energy 0.0 0.1 0.0 0.7 1.3 1.5 2.3
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