Monday, May 3, 2010

Personal Income Up 0.3%; Consumption Up 0.6%; PCE Deflator Up 0.1%

In March, personal income grew by 0.3%. The increase was led by increased transfer payments. Wages and salaries grew by a lesser 0.2%. From a year-prior, incomes were up 3.0%, a stark turnaround from a negative year-over-year change as recently as last December. However, most of this increase was due to transfer payments. Non-transfer payment income was up only slightly on a year-ago basis.

Personal consumption growth outpaced income growth in March, rising 0.6%. This is solid consumption growth and was the seventh consecutive increase. From a year-prior, consumption was up 4.5%. Consumers in recent months have been increasing their spending at faster rates than their incomes. Therefore, the savings rate has trended downward, now sitting at 2.7%. This is down from a recent high of 5.9% in May of 2009 and 4.0% as recently as December. The ability for consumers to expand their consumption faster than the rate of income growth cannot be sustained for long. At some point, either income growth will have to become more robust or the resurgence of the consumer in recent months will be short lived.

As measured by the PCE deflator prices rose by 0.1% over the month. Therefore, real incomes rose by 0.2% and real consumption rose by 0.5% , From a year prior, the PCE deflator rose 2.0 percent. As recently as September, the year-over-year change had been negative. Therefore, on a year-ago basis, real income was up 1.0% while real consumption was 2.5% higher. The core PCE deflator, which excludes energy and food prices, also rose by 0.1% over the month and was 1.3% higher from a year prior.

10.05.03 (Source: Bureau of Economic Analysis)

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