Stocks Fail to Rise Despite Gains in Income, Sentiment

by devteam June 26th, 2009 | Share

Despite reports of higher income and improving consumer confidence, markets are off to a rough start on Friday morning with all three indexes in the red an hour into the trading session. 

Leading the decline is the 0.36% drop in the Dow to 8442, while the S&P 500 has edged down 0.29% to 917, and the Nasdaq is just 0.5% below par at 1829.

An hour before the opening bell, personal income levels advanced far more than forecasts in May, helping consumption see its first gain in three months. Income rose by 1.4% in the month, a full percentage point better than expectations, which helped to boost spending by 0.3%, in line with expectations.

However, wages actually declined in the month, as incomes only rose due to social security checks from the stimulus package.

“Government transfer payments and tax cuts are propping up incomes, as the fiscal stimulus package kicks in, and they are preventing more damage to consumer spending,” noted analysts at IHS Global Insight. “In May, one-time payments to  Social  Security recipients kicked in, accounting for 1.3 percentage points of the 1.4% increase in personal income.”

The report also showed the savings rate climbed to a 16-year at 6.9%, indicating consumer spending may suffer in the future. Inflation remained benign with a 0.1% monthly advance in the core and all-items indexes.

Meanwhile, a 10 am report said Consumer Sentiment improved slightly more than expectations to its highest level in 16 months. The Reuters/U of Michigan index moved up to 70.8 in June from 68.7 in May, even as gas prices rose significantly in the month.

The one-month increase isn’t by itself that big, but since bottoming out in November 2008 the index has advanced nearly 16 points.

“Such a sizable gain has usually indicated that an end to the economic downturn is on the horizon, as consumers begin to increase their spending on houses, vehicles, and large household durables,” an accompanying press release stated.

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About the Author


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

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