Tuesday, August 3, 2010

Personal Income, Consumption Unchanged; Savings Rate Numbers Revised Much Higher

In June, personal income growth was flat flowing three months of strong growth. The month’s lackluster performance was in part due to the ending of temporary census workers employment. This helped to drive down wages and salaries, which fell 0.1%. From a year-prior, however, incomes were 2.6% higher.

Personal consumption growth was also flat. Following a couple of months of strong growth in the late winter and early spring, the consumer has become more cautious. April ended a period of seven consecutive monthly increases. Still, due to the increases in consumption earlier in the year, from a year prior, personal consumption was up 3.1%.

The recent slowdown of consumption relative to income has been due to consumers moving to increase their rate of savings. This is even more evident with recent revisions that were made showing that consumption trends over the past year were lower that had been previously reported. As a result, the personal savings rate numbers were adjusted higher. The savings rate came in at 6.4% in June, up slightly from May. The rate has now has been at least 5.4% since the beginning of the year. It had been previously reported that the rate in recent months was around 3.0 to 3.5%. It is now trending near a high level not seen since the early 1990s.

As measured by the PCE deflator, prices fell slightly over the month by 0.1%. Therefore, real incomes and real consumption both rose by 0.1%. From a year prior, the PCE deflator was 1.4% higher, a new cyclical low growth rate. Therefore, on a year-ago basis, real income was up 1.2% while real consumption was 1.7% higher. The core PCE deflator, which excludes energy and food prices, was unchanged over the month and was 1.4% higher than a year prior.

10.08.03 (Source: Bureau of Economic Analysis)

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