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Personal Income Flat, Consumer Expenditures Show Modest Gains

August 28th, 2009 Michael McDonough

Personal income was flat in July, compared to a consensus forecast of 0.1%, and a previous decline of -1.1%.   Disposable income was unchanged. Despite the government’s ‘Cash for Clunkers’ program consumer expenditures rose by 0.2%%, compared to a consensus forecast of 0.3%, and a previous reading of 0.6%.  Continued weakness in the job’s market continues to adversely impact both spending and income.  The market seems to be interpreting this as positive news, regardless of no gains in consumer income.  This could make any rally based on this news today very fragile.  The savings rate fell to 4.2% from 4.5% in July.  The last recession this country faced ended with a consumer led recovery, supported by significant consumer credit growth; this time that will not be the case.  Until we see improvements in the labor market consumer income and spending will likely remain moot.

Monthly Changes in Income & Expenditures:

Mar-09 Apr-09 May-09 Jun-09 Jul-09
Personal income, current dollars -0.5% 0.3% 1.4% -1.1% 0.0%
Disposable personal income:
Current dollars -0.2% 0.9% 1.7% -1.1% 0.0%
Chained (2005) dollars -0.1% 0.8% 1.6% -1.6% -0.1%
Personal consumption expenditures:
Current dollars -0.3% -0.1% 0.1% 0.6% 0.2%
Chained (2005) dollars -0.2% -0.2% 0.1% 0.1% 0.2%

Source: BEA

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