Personal income increased $3.8 billion, or less than 0.1 percent, and disposable personal income (DPI) decreased $4.6 billion, or less than 0.1 percent, in July, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $25.0 billion, or 0.2 percent. In June, personal income decreased $133.4 billion, or 1.1 percent, DPI decreased $119.9 billion, or 1.1 percent, and PCE increased $60.9 billion, or 0.6 percent, based on revised estimates.
Payrolls Increased
Reflecting the slight uptick in average hourly wages and average hours worked that showed up in the second quarter GDP figures, private wage and salary disbursements increased $6.7 billion in July, in contrast to a decrease of $24.5 billion in June. Goods-producing industries’ payrolls increased $1.4 billion, in contrast to a June decrease of $10.0 billion; manufacturing payrolls increased $5.0 billion, in contrast to a June decrease of $14.5 billion.
Real DPI, Real PCE and PCE Price Index
Real DPI—DPI adjusted to remove price changes—decreased 0.1 percent in July, compared with a decrease of 1.6 percent in June.
Real PCE—PCE adjusted to remove price changes—increased 0.2 percent in July, compared with an increase of 0.1 percent in June. The increase is largely attributable to motor vehicle purchases spurred by the federal CARS program, aka “cash for clunkers.”
According to a technical note released by the BEA, the following is a simplified example of how a transaction under the CARS program will be reflected in PCE: Suppose a household purchases a new car under the CARS program and pays a negotiated price of $20,000 less a rebate of $3,500, for a transaction price of $16,500. The purchase of the new car will be included in PCE. The valuation for current-dollar PCE is the net price paid by the household after the rebate—which is $16,500, the value of the transaction for current-dollar PCE. (The $3,500 will be reflected in the GDP statistics as a subsidy, which is like a negative sales tax).
For calculation of real PCE, BEA deflates the current-dollar value by the relevant price deflator, which in principle should reflect the decrease in the transaction price. Thus, all else equal, the effect of the CARS program are reflected in increases in quantity and decreases in prices for the motor vehicle component of PCE.
Savings Rate
The Savings Rate fell to 4.2 percent in July from 4.5 percent in June. Over the past 30 years, the Savings Rate has averaged 5.6 percent and before 1995 it averaged 7.7 percent. Although personal savings have improved dramatically from the negative rate that had been posted in the years prior to the Financial Crisis of 2008, there is still some distance to go before returning to normal.
Peter Boockvar, Equity Strategist at Miller Tabak & Co., LLC, sums it up best: “Saving is the new cool and having credit card debt is so passe. This transition is not a multi Q process but multi year and it has implications for US economic growth for years to come. Our economy will be for the better though in time as exports and investment eventually pick up the slack as we can better finance our growth with savings and less on debt. Even if consumers wanted to pick up their spending in the face of weak income growth, they can’t as access to credit remains crimped. Credit drove our economy on high speed for 10 years. We’ll get a rebound but it won’t be sustainable until we save more and export more.” Read Boockvar’s complete post here: Income Spending Savings.
Investors jumping on the retail-stock-buying bandwagon had better be sure about the long-term value of the underlying company. Many retailers are going to struggle to eke out a profit in the face of lower personal consumption over a multi-year period. Competition for ever scarcer consumer spending will likely drive more than a few retailers out of business, and many more will suffer below-par earnings, thus reducing the value of the company.
Read the full BEA release here: Personal Income and Outlays: July 2009.
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Gregg D. Killoren
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Personal Income Flat, Consumption Up 0.2 Percent in July 2009
Personal income increased $3.8 billion, or less than 0.1 percent, and disposable personal income (DPI) decreased $4.6 billion, or less than 0.1 percent, in July, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $25.0 billion, or 0.2 percent. In June, personal income decreased $133.4 billion, or 1.1 percent, DPI decreased $119.9 billion, or 1.1 percent, and PCE increased $60.9 billion, or 0.6 percent, based on revised estimates.
Payrolls Increased
Reflecting the slight uptick in average hourly wages and average hours worked that showed up in the second quarter GDP figures, private wage and salary disbursements increased $6.7 billion in July, in contrast to a decrease of $24.5 billion in June. Goods-producing industries’ payrolls increased $1.4 billion, in contrast to a June decrease of $10.0 billion; manufacturing payrolls increased $5.0 billion, in contrast to a June decrease of $14.5 billion.
Real DPI, Real PCE and PCE Price Index
Real DPI—DPI adjusted to remove price changes—decreased 0.1 percent in July, compared with a decrease of 1.6 percent in June.
Real PCE—PCE adjusted to remove price changes—increased 0.2 percent in July, compared with an increase of 0.1 percent in June. The increase is largely attributable to motor vehicle purchases spurred by the federal CARS program, aka “cash for clunkers.”
According to a technical note released by the BEA, the following is a simplified example of how a transaction under the CARS program will be reflected in PCE: Suppose a household purchases a new car under the CARS program and pays a negotiated price of $20,000 less a rebate of $3,500, for a transaction price of $16,500. The purchase of the new car will be included in PCE. The valuation for current-dollar PCE is the net price paid by the household after the rebate—which is $16,500, the value of the transaction for current-dollar PCE. (The $3,500 will be reflected in the GDP statistics as a subsidy, which is like a negative sales tax).
For calculation of real PCE, BEA deflates the current-dollar value by the relevant price deflator, which in principle should reflect the decrease in the transaction price. Thus, all else equal, the effect of the CARS program are reflected in increases in quantity and decreases in prices for the motor vehicle component of PCE.
Savings Rate
The Savings Rate fell to 4.2 percent in July from 4.5 percent in June. Over the past 30 years, the Savings Rate has averaged 5.6 percent and before 1995 it averaged 7.7 percent. Although personal savings have improved dramatically from the negative rate that had been posted in the years prior to the Financial Crisis of 2008, there is still some distance to go before returning to normal.
Peter Boockvar, Equity Strategist at Miller Tabak & Co., LLC, sums it up best: “Saving is the new cool and having credit card debt is so passe. This transition is not a multi Q process but multi year and it has implications for US economic growth for years to come. Our economy will be for the better though in time as exports and investment eventually pick up the slack as we can better finance our growth with savings and less on debt. Even if consumers wanted to pick up their spending in the face of weak income growth, they can’t as access to credit remains crimped. Credit drove our economy on high speed for 10 years. We’ll get a rebound but it won’t be sustainable until we save more and export more.” Read Boockvar’s complete post here: Income Spending Savings.
Investors jumping on the retail-stock-buying bandwagon had better be sure about the long-term value of the underlying company. Many retailers are going to struggle to eke out a profit in the face of lower personal consumption over a multi-year period. Competition for ever scarcer consumer spending will likely drive more than a few retailers out of business, and many more will suffer below-par earnings, thus reducing the value of the company.
Read the full BEA release here: Personal Income and Outlays: July 2009.
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