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The Latest ANALYTICS a na ly t ic s Spending Growth Outpaces Income in June Personal spending outdoes expectations while income falls short. By Mark Lieberman, Five Star Institute, Chief Economist P ersonal spending in June grew 0.5 percent, its fastest pace since February, while personal income rose 0.3 percent, the Bureau of Economic Analysis (BEA) reported in recent days. Economists had expected income and spending each to grow 0.4 percent. Data for May were revised to show income grew $49.5 billion, a gain of 0.4 percent instead of the originally reported 0.5 percent, or $69.4 billion, increase. The changes to the May data were part of a larger revision dating back to 1929. By the numbers, income grew $45.4 billion, while spending was up $59.4 billion, the largest month-over-month increase since February when spending rose $75.7 billion. Most of the spending increase in June was for goods, up $44.2 billion, with spending on nondurable goods increasing $33.5 billion. Durable goods, which signal consumer confidence since they are usually paid for with borrowed funds, increased $10.7 billion. In May, spending on durables increased $7 billion, while spending for non-durables was up $11.6 billion. Compensation—wages and salaries along with health and pension contributions by employers—accounted for most of the increase in income, $41.7 billion. Farm income, struggling against heavy rains and severe drought in various parts of the country, fell $24 billion in June after dropping $24.1 billion in May. Farm income in June was down almost 20 percent from May although it was up 27 percent from June 2012. Government transfer payments—Social Security and Medicaid—increased $5.9 billion in June after jumping $18.3 billion in May. Payments in May were artificially boosted because June 1 was a Saturday, accelerating some program payouts to May. Unemployment insurance payments dropped $2.8 billion in June, reflecting an improving job market and the impact of the federal budget sequester. In response to the sequester, many states have reduced unemployment insurance payments or the number of weeks an individual can receive them. Unemployment insurance payments have declined each month this year. With spending exceeding income, personal savings fell $21.7 billion in June, and the personal savings rate dropped to 4.4 percent from 4.6 percent in May. Despite rising interest rates, personal interest payments for non-real estate related debt fell $4.3 billion in June. The M Report | 49 se c on da r y m a r k e t — Jeffery DeBoer, Real Estate Roundtable s e r v ic i ng "This survey indicates a commercial real estate sector and national economy stuck on a plateau of recovery—certainly improved since the worst days of the recession, but not moving forward in any robust way." Or ig i nat ion Respondents also noted increased planning and construction in asset classes outside the multifamily segment and greater investor interest outside of "red hot" metros such as New York, San Francisco, Dallas, and Houston. At the same time, however, anecdotal comments showed participants are maintaining their level of caution, with one remarking, "General conditions are good but not terrific. People are still incredibly cautious with their growth plans; everyone is planning on growth, but they are hesitant to take a leap of faith in this economy." Discussing interest rates, respondents offered mixed views. While many pointed to strong capital availability and increased optimism as good signs for property values, numerous respondents said they are concerned about rising rates and their potential to slow the recovery of asset values. "Although the Fed is expected to maintain its highly accommodative monetary policy for the foreseeable future—signaling this week that 'tapering' of the QE3 program is now less imminent—the risk is that interest rates could begin to rise before property owners' net operating incomes (NOI) have caught up with increasing job creation," the Roundtable said in a release. The group also noted that artificially low rates are contributing to artificially high asset prices in some areas—meaning an increase in interest rates could create a mess.