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Personal Incomes Fall Without Stimulus Support

by devteam August 4th, 2009 | Share

 

The headlines tell a story of incomes tumbling in June, but the reality is that the stimulus package artificially boosted incomes in May, which caused the figures to drop on a monthly basis in June. 

Personal income fell 1.3% in June, erasing the equivalent gain in May. Technically that’s the biggest fall in four years, but as the BEA noted: “The June change in personal income reflects selected provisions of the American Recovery and Reinvestment Act of 2009, which boosted personal current transfer receipts in May much more than in June.”

Disposable personal income also fell 1.3%, following a 1.6% advance in May.

Taking inflation into account, real disposable income shrunk 1.8% in the month, more than erasing the 1.5% increase in May. 

Meanwhile, consumption advanced 0.4% in the month, the biggest increase since February, and following a 0.1% gain in May. That sounds good, but with inflation in the picture, real consumption actually fell 0.1%, following an increase of less than 0.1% in May.

Even with the third quarter expected halt four quarters of declines in GDP, the road to recovery is expected to be slow and grueling. Consumption accounts for more than two-thirds of US GDP, and economists expect spending to be soft in the months ahead as the unemployment rate remains high and those with jobs are trying to save more.

“We know that consumers continue to be backed into a corner, and despite the reduction in the personal savings rate, we continue to believe that going forward consumers are likely to have more propensity to save than to spend,” said Ian Pollick, strategist at TD Securities, who said today’s report doesn’t change the view forward at all.

The central bank’s preferred measure of inflation, the core PCE deflator, moved up 0.161% in the month, in line with expectations. Annually, core inflation is now at +1.5%, a softer figure than expected.

US stock futures, already looking south before the report, continued looking downwards after the release. S&P 500 futures are set to open 6.1 points lower at 994.60, while Nasdaq futures have dropped 10 points to 1,617, and the Dow looks to open 58 points lower than Monday’s close.

 

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About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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