Personal Income, Spending Surge in August

Personal Income, Spending Surge in August


Personal income grew in August at its fastest pace since February and consumer spending grew faster than in July, the Bureau of Economic Analysis reported Friday. The growth matched economists’ forecasts of a 0.4 percent boost in income and a 0.3 percent increase in spending. BEA also revised up its estimate of both spending and income growth in July.

The report suggested strong growth in spending for the third quarter ending Monday, which would boost GDP. In the first two months of the second quarter – during which the economy grew at a seasonally adjusted annual rate of 2.5 percent – consumer outlays were essentially flat, dropping 0.2 percent in April and then increasing by the same amount in May. Spending rose 0.6 percent in June, contributing to the GDP growth.

Total employee compensation, which had fallen 0.2 percent in July, rose .04 percent or $34.2 billion in August. Wages rose an aggregate 0.4 percent or $30.4 billion in August after dropping $18.5 million. The calendar often affects wage and government transfer payments. There were four Fridays, traditional paydays, in July but five in August.

Farm income, which had struggled earlier the year due to droughts and flooding in different parts of the country, rose $7.9 billion or 6.8 percent in August, the second straight month of income growth after falling in April, May and June.

Government transfer payments – essentially Social Security and Medicare (along with a few other categories) – rose a collective 0.4 percent or $10.8 billion in August.

$10.6 billion came from Social Security. Medicare payments increased 0.6 percent or $3.7 billion. Those increases were offset by a 3.6 percent or $2.3 billion drop in unemployment insurance payouts.

Reflecting turmoil in both the debt and equity markets, personal interest payments fell a combined 0.2 percent or $4.5 billion with interest – despite an increase in rates – dropping 0.3 percent or $3.5 billion. Personal dividend payments slipping 0.1 percent or $1 billion.

Personal savings grew almost $18 billion to 4.6 percent of disposable (essentially after-tax) income.

Most of the spending increase in August was for services, which includes spending on vacations, and was up $28.3 billion. Spending for goods rose $6.2 billion. Spending on durable goods – typically big ticket items paid with borrowed funds – increased $6.7 billion while spending on non-durable goods dropped $0.5 billion. Spending on durable goods often serves as an indicator of consumer confidence.

Consumer spending is about 70 percent of the nation’s economy, so this report for the first month of the quarter offers the first glimpse into third quarter gross domestic product. BEA Thursday reported GDP for the second quarter improved at a seasonally adjusted annual rate of 2.5 percent.

BEA also reported the personal consumption price index — which tracks spending — increased less than 0.1 percent in July, compared with an increase of 0.2 percent in June. Year over year the index is up 1.4 percent. Excluding food and energy, the index rose 0.1 percent in July, compared with 0.2 percent in June and is up 1.2 percent in the last year.

The price index for PCE increased 0.1 percent in August, the same increase as in July. The PCE price index, excluding food and energy, increased 0.2 percent in August, compared with an increase of 0.1 percent in July. Both indices are up 1.2 percent from a year earlier.

Then Fed has set a target of 2.0 percent for inflation as a trigger – along with a 6.5 percent unemployment rate – for phasing out its monetary policy designed to stimulate the economy.

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