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Economy in Brief

U.S. Spending & Income Gains Eroded By Higher Prices
by Tom Moeller  May 27, 2011

Individuals continue to do their part in supporting the economic recovery. It's just that higher prices are eroding the effort.Personal consumption expenditures gained 0.4% last month, after a 0.5% March rise, but that increase was revised lower from 0.6%. A 0.5% April increase had been expected. Spending on goods rose 0.7% (8.4% y/y) paced by a 3.0% jump (27.9% y/y) in gasoline & energy. In constant dollars, spending on goods was unchanged (4.2% y/y) while real spending on gasoline slipped 0.2% (-3.7% y/y). Durables spending rose 0.3% (8.1% y/y) as auto purchases jumped 1.5% (15.6% y/y). In constant dollars, personal consumption rose 0.1% last month (2.6% y/y), the same as during March.

Personal income rose 0.4% during April following a 0.4% March increase, initially reported as 0.5%. A 0.4% gain had been expected. In constant dollars, spending rose 0.1% for the second month. Disposable personal income gained 0.3%; however, when adjusted for higher prices, income slipped after no-change in March.

Growth in wages & salaries remained moderate at 0.4% (3.3% y/y) and the y/y gains look to have peaked despite the improved job market. Rental income continued strong and rose 0.9% (12.9% y/y) while proprietors' income grew 0.4% (5.6% y/y). Economic improvement raised April dividend income by 0.6% (5.4% y/y) while interest income ticked up again by just 0.1% (0.4% y/y) for the fourth consecutive month. The personal savings rate held at 4.9% while earlier figures were revised lower.

The PCE chain price index increased 0.3% last month (2.2% y/y). Higher gasoline prices again accounted for most of the strength with a 3.2% jump (33.6% y/y). Food prices also gained 0.4% (3.2% y/y). The core PCE price deflator rose 0.2% and 1.0% y/y versus the record low year-to-year gain of 0.7% reached in December.

The personal income & consumption figures are available in Haver's USECON and USNA databases. The expectations figures are in the AS1REPNA database.

Personal Income & Outlays (%) Apr Mar Feb Y/Y 2010 2009 2008
Personal Income 0.4 0.4 0.4 4.4 3.0 -1.7 4.0
  Wages & Salaries 0.4 0.3 0.4 3.3 2.0 -4.3 2.1
Disposable Personal Income 0.3 0.4 0.3 3.3 3.1 0.7 5.1
Personal Consumption Expenditures 0.4 0.5 0.8 4.8 3.5 -1.0 3.0
Saving Rate 4.9 4.9 5.0 6.0 (Apr.'10) 5.8 5.9 4.1
PCE Chain Price Index 0.3 0.4 0.4 2.2 1.7 0.2 3.3
  Less Food & Energy 0.2 0.1 0.2 1.0 1.3 1.5 2.3
Real Disposable Income -0.0 0.0 -0.1 1.1 1.4 0.6 1.7
Real Personal Consumption Expenditures 0.1 0.1 0.4 2.6 1.7 -1.2 -0.3
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