U.S. Personal Income Growth Outpaces Spending

A firmer job market is lending strength to earnings power. Personal income increased 0.4% during March (4.2% y/y) following a 0.1% uptick in February, revised from 0.2%. A 0.3% increase had been expected in the Action Economics Forecast Survey. Wages & salaries increased 0.4% (4.7% y/y) following a 0.1% slip. In other income categories, rental income strengthened 0.8% (7.7% y/y), but proprietors income remained unchanged (3.5% y/y). Transfer payments increased 0.3% (3.7% y/y) as Medicare receipts rose 0.5% (5.3% y/y). Social security payments eased slightly (+2.5% y/y). Unemployment insurance payments declined 1.5% (-7.2% y/y).

Disposable personal income increased 0.4% (4.0% y/y) following February's 0.1% rise. Adjusted for price increases, take-home pay rose 0.3% (3.1% y/y) following 0.2% increases in the prior two months..

Personal consumption expenditures during March increased a minimal 0.1% (3.5% y/y) following two months of 0.2% gain. February's rise was revised from 0.1%. The latest increase fell short of expectations for a 0.2% rise. Spending on durable goods declined 0.6% (+1.3% y/y), leaving Q1 growth at -2.7% (AR). Motor vehicle & parts purchases fell 2.0% (-4.8% y/y), down for the fourth consecutive month. Spending on furniture & appliances offset this decline with a 0.4% rise (3.1% y/y), while recreational goods & vehicles purchases rose 0.2% (6.1% y/y). Nondurable goods spending advanced 0.6% (0.4% y/y), but quarterly purchases declined 4.7% (AR). Clothing & footwear buying declined 0.5% (+0.3% y/y), but gasoline purchases increased 4.5% with higher prices (-17.6% y/y). Food & beverage purchases rose 0.4% (1.0% y/y). In the services area, outlays rose 0.1% (4.8% y/y), the gain held back by a 0.4% decline (+2.8% y/y) in spending on housing & utilities. Health care outlays rose 0.4% (4.5% y/y) while recreation buying gained 0.3% (8.8% y/y). Spending at restaurants & hotels fell 0.6% (+5.5% y/y). 

Adjusted for price inflation, personal consumption expenditures remained constant m/m (2.6% y/y) after a 0.3% increase. During Q1, spending rose at a 1.9% annual rate, the weakest rise in a year.

The personal savings rate held steady at 5.4%, but February's rate was lessened to 5.1%. January's rate also was revised down to 5.2%. The Q1 savings rate of 5.2% equaled the level in Q1'15. The level of personal savings rose 12.7% y/y in March.

The chain-type price index rose 0.1%, and the y/y increase of 0.8% compared to a 0.3% rise during all of last year. The price index excluding food & energy also nudged 0.1% higher (1.6% y/y). The service price index gained 0.2% (2.1% y/y). The durable goods index declined 0.3% (-1.6%) while the nondurables price index eased 0.1% (-1.9% y/y).

The personal income & consumption figures are available in Haver's USECON database with detail in the USNA database. The Action Economics figure is in the AS1REPNA database.

A Discussion of Key Secular Trends, Economic Conditions and Monetary Policy by Robert S. Kaplan, President & CEO, Federal Reserve Bank of Dallas is available here http://www.dallasfed.org/news/speeches/kaplan/2016/rsk160429.cfm

Chicago purchasing managers reported that their Business Barometer Index declined to 50.4 this month following a jump to 53.6 in March. The latest reading fell short of expectations for 53.0 in the Action Economics Forecast Survey. The figure has been range-bound since early last year.

Haver Analytics constructs an ISM-Adjusted Index using the Chicago numbers, comparable to the overall ISM index to be released tomorrow. Our figure increased to 52.0, but has been moving sideways for a year. During the last ten years, there has been a 61% correlation between the adjusted Chicago Purchasing Managers index and real GDP growth.

The employment figure declined following its jump in March, and remained below the 2014 highs. During the last ten years, there has been an 81% correlation between the employment figure and the m/m change in factory sector employment. New orders also declined along with order backlogs. Production improved slightly while the supplier delivery reading jumped, indicating slower delivery speeds. Inventories also improved.

The prices paid reading jumped to the highest level since November 2014. A sharply increased 22% (NSA) of respondents reported paying higher prices while a notably lessened 11% paid less.

The MNI Chicago Report is produced by MNI/Deutsche Borse Group in partnership with ISM-Chicago. The survey covers a sample of over 200 purchasing professionals in the Chicago area with a monthly response rate of about 50%. The ISM-Adjusted headline index is calculated by Haver Analytics using these data to construct a figure with the ISM methodology. The figures can be found in Haver's SURVEYS database. The Consensus expectations figure is available in AS1REPNA.