U.S. Personal Income Grows Modestly; PCE Raised By "Cash-for-Clunkers"

Personal income in August continued to increase at its modest July rate. The 0.2% rise  followed a 0.2% gain which was revised from 0.1%. Consensus forecasts were for a 0.1% uptick. These weak increases wholly reflect the current recession. Year-to-year income growth fell 2.6% during the last twelve months after a 2.9% increase last year.

The dismal job market accounts for this year's negative income growth. Wages & salaries rose modestly m/m during July and August. However, these latest gains were not enough to lift wages yr-to-yr which fell 5.2% after a 2.1% 2008 increase. Wages in the factory sector fell 11.6% y/y while service sector wages fell 5.4%. To a limited extent these declines were offset by a 3.6% increase in government sector earnings.

Unemployment insurance payments picked up just some of the slack in the job market and rose 4.4% during August. That lifted payments to $136.9B versus $60.4B during August of last year. Interest income continued to show the effects of lower rates and fell 6.9% y/y while dividend income fell by one-quarter as corporate profits dried up.

Disposable personal income increased just 0.1% following a slight decline during July. Adjusted for inflation, real disposable income slipped for the third straight month, although only by 0.2% during August and by 0.1% in July. Real disposable income growth of 1.3% y/y was lifted by tax cuts earlier this year. The saving rate fell again with the weakness in income growth. The decline to 3.0% contrasted with a May peak of 5.9%. Nevertheless, the rate remained up slightly from last year and double the 2007 level.

Personal spending showed the full effect of the "cash-for-clunkers" program for new motor vehicle purchases. It lifted durables spending by 5.3% (-1.3% y/y) with a 13.3% gain (6.6% y/y) for autos. Spending on nondurables rose just 2.3% (-5.3% y/y) as outlays on apparel continued down by 3.8% versus last year. Spending on furniture continued quite weak and fell 7.7% versus last year. Outlays on services increased 0.4% (1.7% y/y) as spending on health care continued quite strong and posted a 5.2% gain versus last year. Spending in restaurants and on recreation remained negative.

Prices increased 0.3% during August reflecting an 8.4% rise (-30.5% y/y) in gasoline costs and another rise is in store for September. Nevertheless, the PCE chain price index still was down by 0.5% versus last year. Less food-and-energy, "core" prices were again quite tame and posted their fourth consecutive 0.1% increase. Goods prices rose 0.7% (-3.6% y/y while prices for services increased just 1.0% y/y.

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

Yesterday's speech titled Central Bank Exit Policies by Vice Chairman Donald L. Kohn can be found here.