Updated: 01-Jun-09 09:13 ET

April Personal Income and Spending

Updated: 01-Jun-09 09:13 ET

Highlights

• The headlines for the Personal Income and Spending report for April were better than expected, with income up 0.5% (consensus -0.2%) and spending down 0.1% (consensus -0.2%).
• Disposable personal income rose 1.1% thanks to a boost from the provisions of the American Recovery and Reinvestment Act that reduced personal current taxes and increased government social benefit payments.  Excluding those factors, disposable income increased 0.7%.
• For the April period, private wage and salary disbursements decreased $1.3 billion, but total wage and salary disbursements were basically flat at $6.46 billion.  Proprietors' income increased $4.5 billion, or 0.4%, rental income increased $2.7 billion, or 3.1%, while personal current transfer receipts increased $45.7 billion, or 2.3%.
• Real personal consumption expenditures declined -0.1% while the personal savings rate rose to 5.7% versus 4.5% in March.

Key Factors

• The decline in real PCE goes to show consumers are still playing it close to the vest when it comes to spending because of rising unemployment and the lack of a pickup in wages in the face of a weak labor market.  Their conservative approach was evident in the personal savings rate increase.
• This report fit the bill from a headline perspective, but it wasn't a strong report economically speaking.

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 trend in real PCE has been down since June.  The declines accelerated at the end of 2008.  This is a significant problem for the economy, and will remain so until payroll declines moderate.  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.