May Personal Income and Spending
Updated 26-Jun-09 09:19 ET
Highlights
- The Personal Income and Spending report produced some nice headlines, with income increasing 1.4%, spending rising 0.3% and core PCE increasing just 0.1%. The pleasing nature of the headlines is based on the understanding that consensus estimates for those components were set at 0.3%, 0.3%, and 0.1%, respectively.
- The personal income increase for April was revised up to 0.7% (from 0.5%) while the spending number for April was revised to unchanged from an originally reported -0.1% decline.
- Real disposable personal income was up 1.6% in May; however, when excluding the benefits of the American Recovery and Reinvestment Act (read: lower personal taxes and higher government transfers), real disposable income was up just 0.2%.
- Private wage and salary disbursements fell -0.2%, marking the ninth straight monthly drop in that series.
- The personal savings rate increased to 6.9% from 5.6% in April.
- Real PCE was up 0.2% versus a -0.1% drop in April.
- The inflation gauge of core PCE was up just 0.1%, which left the year-over-year increase at 1.8%. That is within the Fed's comfort zone and is relatively good news.
Key Factors
- The jump in real disposable personal income, ex government factors, is OK, yet it certainly doesn't have the pleasing quality of the leading headline, especially when one also takes into account the continued drop in private wage and salary disbursements.
- The sharp increase in the personal savings rate underscores the consumer's bid to save more and spend less, which isn't the best combination when contemplating the prospects of a quick and robust recovery effort.
- The real PCE number for May left the Q2 average roughly 0.1% below the Q1 average, so real PCE will still be accounted for as a negative factor in GDP estimates, although not nearly as extensively in recent quarters.
Big Picture
- Real (inflation-adjusted) personal income expenditures (PEC) account for about 70% of GDP. These data therefore warrant significant attention. The data come out after the monthly retail sales numbers, however, and the market therefore does not typically react much to the data. The PCE deflator is the Fed's favorite inflation measure as it is a very broad measurement and is adjusted according to demand. It was rising with energy prices in 2008, but the recent trends are extremely favorable and likely to remain so well into 2009 due to weak overall demand.
| Category |
MAY |
APR |
MAR |
FEB |
JAN |
| Personal Income |
|
|
|
|
|
| Total Income |
1.4% |
0.7% |
-0.3% |
-0.3% |
0.0% |
| Wage and Salary |
-0.1% |
0.1% |
-0.5% |
-0.4% |
-0.3% |
| Disposable Income |
1.6% |
1.3% |
0.0% |
-0.1% |
1.5% |
| Savings Rate |
6.9% |
5.6% |
4.3% |
4.1% |
4.6% |
| Personal Consumption |
|
|
|
|
|
| Total (Nominal) |
0.3% |
0.0% |
-0.3% |
0.4% |
0.9% |
| Total (Real, Chain $) |
0.2% |
-0.1% |
-0.2% |
0.0% |
0.7% |
| Core PCE Deflator |
|
|
|
|
|
| Month/Month |
0.1% |
0.3% |
0.2% |
0.2% |
0.2% |
| Year/Year |
1.8% |
1.9% |
1.8% |
1.8% |
1.7% |
