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Economy in Brief

U.S. Personal Spending Mixed & Income Firm
by Tom Moeller May 28, 2010

Lower gasoline prices and a pause in auto purchases braked consumer spending last month. Personal consumption expenditures were unchanged during April after an unrevised 0.6% March gain. A 0.3% increase had been expected. Spending on gasoline slipped for the third straight month due to price declines. The price influence is clear when observing that during the last year nominal spending rose 35.9%; but in constant dollars, spending was roughly unchanged. A large contribution from spending on autos also is clear, but the trend is improved. Real spending fell 1.3% in April after an 8.9% gain in March; but versus last year, spending on motor vehicles has increased 11.3%.

Elsewhere, spending looked firm. April spending on home furnishings rose 1.4% (7.4% y/y) for the third such monthly increase. Even after allowing for higher prices, real spending was up 1.8% y/y following the 5.9% decline during 2009. Apparel spending took a breather, falling 0.8% last month after gains between 1.7% and 2.1% during March & February. More impressive was that spending rose 5.7% y/y after the 3.5% decline last year. Adjusting for lower prices spending jumped 6.8% y/y after falling 4.3% in 2009. Spending on services continued firm at 2.8% y/y following last year's 1.6% increase. The gain still was bloated by the 4.3% y/y jump in health care expenditures but spending on financial services (4.3% y/y), restaurants & accommodations (2.8% y/y) and recreation (0.8% y/y) each was greatly improved.

Last month an expected 0.4% gain in personal income accompanied the spending numbers. April disposable income rose an even firmer 0.5% (2.8% y/y). Year-to-year, both are much improved versus 2009 but tax cuts have fueled take-home pay more. Higher gasoline prices also cut into income growth. The 0.9% y/y gain in real disposable income just equaled last year's increase. The outgrowth of spending gains that exceeded income growth during the last twelve months lowered the personal savings rate to 3.6% from its high of 6.4% when the tax cuts were enacted. The latest rate still was up, however, from the 1.0% low at the beginning of the last recession.

Employment declines left wages & salaries up just 0.3% y/y, though that followed a sharp 4.1% decline last year. Wages in the factory sector, however, rose a firmer 0.7% in April (-3.4% y/y) and compared to last year's 11.3% shortfall. In the private service sector, wages increased 0.8% y/y after last year's 4.0% decline. Improvement in the housing market pulled proprietors' income up 5.4% y/y, its strongest gain since early 2006 while the stabilization of interest rates left interest income up 0.3% y/y following last year's 5.3% decline. Dividend income remained down 1.6% y/y but that compared favorably to last year's 19.3% drop and the 10.3% 2008 decline. Finally, gains in unemployment insurance benefits (13.1% y/y) have tapered off with the improved labor market.

The PCE chain price index was unchanged with the 2.3% slip (+38.1% y/y) in gasoline prices. The core PCE price deflator ticked up 0.1%, held back by a 0.9% decline (-1.0% y/y) in apparel prices and a 0.4% decline (-4.3% y/y) in furniture & appliance prices. Services prices also gained 0.2% (1.7% y/y), while health care prices rose 0.3% (2.6% y/y).

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

Disposition of Personal Income (%)  April March February Y/Y 2009 2008 2007
Personal Income 0.4 0.4 0.0 2.5 -1.8 2.9 5.6
   Disposable Personal Income 0.5 0.4 0.0 2.8 1.0 3.9 4.9
Personal Consumption Expenditures 0.0 0.6 0.5 4.6 -0.4 3.1 5.4
Saving Rate 3.6 3.1 3.3 4.9 (April '09) 4.2 2.6 1.7
PCE Chain Price Index 0.0 0.1 0.0 2.0 0.2 3.3 2.7
   Less food & energy 0.1 0.1 0.0 1.2 1.5 2.4 2.4
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