Personal Income and Spending

June Personal Income fell 1.3%, .3% more than expected but comes after the sharp 1.3% gain in May that was driven by one time transfer payments. Excluding the impact from the ARRA stimulus act, Income fell .1% vs almost flat in May. Personal Spending rose .4%, .1% more than the consensus but the prior month was revised down by .2%. Also, because the PCE inflation deflator rose .5% (biggest gain since July ’08), REAL spending for June fell .1%. The savings rate fell to 4.6% from a revised 6.2% in May and puts it back to the 4.7% level in April. Going back to 1960, the average savings rate is 6.8%. Wages and salary fell .4% and is now down 10 months in a row with government employees the only sector seeing pay raises. Bottom line, spending remains punk and a tough labor market isn’t helping. Also, a change in the savings habits of Americans will keep a lid on spending that will hopefully be offset by exports and business investment. This data was included in Friday’s Q2GDP report but we can at least see how the quarter ended.

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