Monday, February 28, 2011

Personal Income and Outlays Report for January

by Bill McBride on 2/28/2011 08:30:00 AM

The BEA released the Personal Income and Outlays report for January:

Personal income increased $133.2 billion, or 1.0 percent ... Personal consumption expenditures (PCE) increased $23.7 billion, or 0.2 percent.
Real PCE -- PCE adjusted to remove price changes -- decreased 0.1 percent in January, in contrast to an increase of 0.3 percent in December.
The January change in disposable personal income (DPI) was affected by two large special factors. Reduced employee contributions for government social insurance ... boosted personal income in January by reducing the employee social security contribution rates ... The January change in DPI was affected by the expiration of the Making Work Pay provisions of the American Recovery and Reinvestment Act of 2009, which boosted personal current taxes and reduced DPI ... Excluding these two special factors ... DPI increased $11.4 billion, or 0.1 percent, in January
The following graph shows real Personal Consumption Expenditures (PCE) through January (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

Personal Consumption Expenditures Click on graph for larger image in graph gallery.

Real PCE declined in January after increasing sharply in Q4. Note: The quarterly change in PCE is based on the change from the average in one quarter, compared to the average of the preceding quarter - so this still shows growth over Q4.

Also personal income less transfer payments increased again in January. This increased to $9,427 billion (SAAR, 2005 dollars) from $9,325 billion in December.

Personal Income less Transfer This graph shows real personal income less transfer payments as a percent of the previous peak. This has been slow to recover, but has improved recently - and is still 3.2% below the previous peak.

The personal saving rate increased to 5.8% in January.
Personal saving as a percentage of disposable personal income was 5.8 percent in January, compared with 5.4 percent in December.
Personal Saving rate This graph shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the January Personal Income report.

When the recession began, I expected the saving rate to rise to 8% or more. With a rising saving rate, consumption growth would be below income growth. But that 8% rate was just a guess. It is possible the saving rate has peaked, or it might rise a little further, but either way most of the adjustment has already happened.

The 1.0% increase in personal income was well above expectations of 0.4%, although spending only increased 0.2% (compared to expectations of 0.4%). The core price index for PCE increased 0.1 percent in January - slightly below expectations.

Overall this is a decent report. Even with the decline in real PCE, the 1.0% increase in income, the increase in the saving rate - and sharp increase in personal income less transfer payments - all were good news.

Weekend on U.S. economy:
Schedule for Week of February 27th
Summary for Week ending February 25th

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