Game Change

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The Latest S e c on da r y M a r k e t a na ly t ic s se r v ic i ng or ig i nat ion ANALYTICS Personal Income, Spending On the Rise A calendar glitch boosted personal income in May. By Mark Lieberman, Chief Economist, The Five Star Institute W ith a boost from the calendar, personal income rose 0.5 percent in May—faster than economists had forecast—while personal consumption went up an unsurprising 0.3 percent, the Bureau of Economic Analysis (BEA) reported. Data for April was revised to show income grew $18.3 billion instead of the originally reported $5.6 billion decline. Data on spending for April was unchanged. Government transfer payments—primarily Social Security— accounted for $19.2 billion of the $69.4 billion monthly increase in 72 | The M Report spending. Since June 1 fell on a Saturday, Social Security payments were distributed on Friday, May 31. Social Security payments can fluctuate in months that begin on a weekend, with payments accelerated to the last business day of the previous month. Compensation—including wages and salaries—went up $24 billion in May after a weak $9.1 billion increase in April. Farm income, which had been a drag on personal income in April, dropped again in May, down $6.7 billion as farmers struggle with crop-destroying heavy rains following a crippling drought. The April decline in farm income—revised to $6.7 billion—was the first month-overmonth decline in farm income since December, when it fell $1 billion. Farm income in May 2012 grew $0.6 billion. Unemployment insurance payments—which were affected by the sequester cuts that took effect at the end of March—were down $23.6 billion from May 2012 to $60 billion. Disposable personal income (essentially after-tax income) rose $57 billion in May, but with consumer spending up $28.5 billion, personal savings increased to $387.6 billion—or 3.2 percent— of disposable income compared with 3 percent in April. Personal consumption fell $49.6 billion in April, which means for the first two months of the quarter, spending—which represents about 70 percent of gross domestic product (GDP)— was down a net $10.6 billion, suggesting a weak GDP report for the second quarter. Personal spending on goods increased $22.3 billion in May after dropping $5.1 billion in April. Spending on services fell $4.3 billion in May after falling the same amount in April. Spending on durable goods—a sign of confidence because they are usually financed with borrowing—rose $14 billion in May after increasing just $2.5 billion in April. Spending on non-durable goods rose $10.2 billion in May after dropping $6.3 billion in April. With interest rates remaining low, personal interest payments on non-real-estate-related debt fell $0.5 billion in May. The personal consumption expenditure (PCE) price index—the Federal Reserve's preferred measure of inflation since it measures actual spending, not prices—rose 0.1 percent in May compared with a 0.3 percent decline in April. The year-over-year PCE inflation rate was 1 percent in May compared with 0.7 percent in April. The core PCE price index (excluding food and energy) rose 0.1 percent in May after no change in April. The core PCE inflation rate was 1.1 percent in May, unchanged from April. Consumer Confidence Up in June The index increased for the third straight month on the back of improving labor conditions. C onsumer confidence saw a sizable jump in June, the Conference Board reported in its monthly Consumer Confidence Survey. Based on responses to the Nielsen survey, the index improved for the third consecutive month to 81.4, the highest level since January 2008. May's index was revised downward to 74.3. "Consumers are considerably more positive about current business and labor market conditions than they were at the beginning of the year. Expectations have also improved considerably over the past several months, suggesting that the pace of growth is unlikely to slow in the shortterm and may even moderately pick up," said Lynn Franco, director of economic indicators at the Conference Board. The Present Situation Index increased to 69.2 from April's revised reading of 64.8. The share of consumers stating business conditions are "good" was mostly flat at 19.1 percent, while those saying conditions are "bad" dropped to 24.9 percent from 26 percent. Consumers' perceptions about the job market were also more positive. Those claiming jobs are "plentiful" increased to 11.7 percent from 9.9 percent, while those claiming jobs are "hard to get" edged up to 36.9 percent from 36.4 percent. Consumer expectations regarding the short-term outlook also improved, with the Expectations Index rising to 89.5 from the previous month's downwardly revised reading of 80.6. Those expecting business conditions to improve over the next six months increased to 20.3 percent, while those expecting conditions to worsen fell to 11.4 percent.

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