U.S. Disposable Personal Income& Spending Continue Firm

Tax breaks continued to spur growth in disposable personal income. Last month's 0.5% gain followed an upwardly revised 0.5% October increase. A decline in tax payments (-25.7% y/y), which began early in 2008, helped spur y/y disposable income growth to 3.1%. Adjusted for a 0.2% (1.5% y/y) rise in the chain price index, real disposable income rose 0.2% (1.5% y/y) for the third consecutive month.

Personal spending rose 0.5% after a 0.6% October increase which was double the initial estimate. The rise fell short of the 0.7% increase which was the Consensus expectation. Durables spending jumped 1.1% (2.5% y/y) as spending on motor vehicles gained another 2.2% (7.9% y/y) following a 9.5% October surge. Spending on other durables, however, remained lackluster. Furniture & appliance purchases fell slightly for the second month and were off 2.9% y/y. Spending on nondurables increased 1.5% (4.6% y/y) as outlays on gasoline jumped 7.2% (18.6% y/y) with higher prices. In constant dollars gasoline outlays rose just 0.9% and were down slightly y/y. Spending on clothing slipped 0.3% (-1.1% y/y) though that y/y change is improved from 6.8% decline at the worst of the recent recession. Outlays on services were unchanged (1.5% y/y). Spending on health care rose 0.4% (4.8% y/y) but housing & utilities spending fell 0.4% (+0.2% y/y).

As a result of tax cuts and moderate spending, the savings rate held steady at the upwardly revised 4.7% October level. The rate has risen sharply from near 1.0% at the beginning of last year.

Overall personal income gained 0.4% during November after an upwardly revised 0.3% October increase. The latest figure fell short of Consensus expectations for a 0.5% rise. Wages & salaries rose 0.3% due to the pickup in average hourly earnings reported with the jobs numbers. Nevertheless, year-to-year growth in wages continued negative (-2.8% y/y), only slightly improved from the worst y/y growth of this cycle. Wages in the factory sector rose 0.2% (-10.4% y/y) after a 0.4% October decline. In the service sector wages rose a firmer 0.4% (-1.7% y/y). Though wages in the government sector only ticked up 0.1% last month, the 2.9% y/y gain easily outpaced the 4.1% decline in private sector earnings.

Growth in unemployment insurance payments slowed further as joblessness fell. In fact, moderate declines during the last two months compare with the y/y doubling earlier this year. Interest income rose 0.2% (-4.6% y/y) as the decline in rates found a bottom while another 0.9% m/m  increase in dividend income nevertheless left it down 18.0% y/y with the weaker economy.

The PCE chain price index increased a moderate 0.2% during November led by a 6.2% (18,5% y/y) increase in gasoline costs. Less food-and-energy, "core" prices were unchanged. Prices for durable goods were off 0.1% (-1.1% y/y) as home furnishing prices fell 0.5% (-2.1% y/y) and apparel prices also fell 0.5% (+0.8% y/y). Prices for services gained a steady 1.2% y/y.

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

Though the December Reuters/University of Michigan Index of Consumer Sentiment slipped from mid-month, is 7.6% increase to 72.5 recovered most of the declines during the prior two months. The latest figure fell short of Consensus expectations for a level of 73.8. Nevertheless, sentiment was up sharply from its low last Fall. During the last ten years there has been a two-thirds correlation between the level of sentiment and the three-month change real consumer spending.

Sentiment about current economic conditions jumped 13.4% from November to the highest level since March of last year. Assessments of  current financial conditions improved to the highest since September of last year. Buying conditions for large household goods, including furniture, refrigerators, stoves & televisions, also moved up by 12.3% to the highest level since January 2008.  

The full-month December reading on expected economic conditions recovered its November decline with a 3.6% increase to the highest level since September. The outlook for business conditions during the next twelve months improved sharply and recovered most of November's decline but the expected business conditions during the next five years fell and expected personal finances advanced just modestly. All three of these readings recently have been flat after sharp improvement early this year.

Expected price inflation during the next year was roughly steady m/m at 3.0% but it was up from last December's reading of 1.7%. Respondents' view of government policy, which may eventually influence economic expectations, fell sharply m/m to the lowest level since February. Sixteen percent of respondent thought that a good job was being done by government versus 39% who thought a poor job was being done.

The Reuters/University of Michigan survey data are not seasonally adjusted. The reading is based on telephone interviews with about 500 households at month-end.  These mid-month results are based on about 320 interviews. The summary indexes are in Haver's USECON database with details in the proprietary UMSCA database.

Inflation Expectations and the Risk of Deflation from the Federal Reserve Bank of San Francisco is available here.

Conflicting signals have been flashed regarding homes sales last month. In contrast to yesterday's report that existing home sales rose, today the Commerce Department reported that new home sales fell by 11.3% m/m to 355,000, the lowest level since April. Nevertheless, near term home sales should be helped by the recent extension of the Federal government's tax credit which now it is for all home buyers and not just first-time purchases. The November sales figure fell well short of Consensus expectations for 439,000 sales. 

Home prices firmed during November though the October figure was revised down. The median price of a new single-family home rose to $217,400 which was the highest level since May. The increase pared the y/y decline to 1.9% from its worst of -14.5% this past February. The average new home price of $280,300 was off 3.4% y/y.

Price discounts, higher sales and much lower housing starts have combined to lower the overhang of unsold homes by more than one-third y/y to the overhang lowest level since the early-1970s. The months' supply of unsold homes rose moderately to 7.9 months but remained down from the high of 12.4 months in January. The figure was the lowest since May 2007.

Recent Developments in Mortgage Finance from the Federal Reserve Bank of San Francisco can be found here. 

Confidence rose again in December for Italian consumers making the string of rises two months long. Still, the overall situation deteriorated by one point to a -57 reading in December leaving the current situation in the 68th percentile of its range.

The outlook for the overall situation also backtracked dropping by 5 points month to month. Unemployment expectations rose and now reside on the top 5% of their range.

The outlook for current savings backtracked but the outlook for future savings rose sharply in the month.

The current environment for major purchase was sharply better with its index rising to -38 from -43 and moving up to the 59th percentile of its range.

Clearly the Italian consumer still feels pressured. The rise in confidence is a good development despite backtracking in some key components.

Italy still has a long way to go to cement any notion of stability.