Personal Income Growth Strengthens

Although holiday retail sales have gotten off to a slow start, the uptick in personal income in October may be a sign of better things to come for the nation’s retailers. Total personal income in the U.S. increased in October by 0.4% on a nominal basis. Wages and salaries, the largest component of personal income, rose by a robust 0.6%.

Real disposable income (adjusted for taxes and inflation) also increased by 0.4%. Real personal consumption expenditures, on the other hand, were up by a tepid 0.1%. Accordingly, the personal saving rate rose from 5.3% in September to 5.6% in October. Real spending on durable goods was up by 0.2% over the month, while spending on nondurable goods edged up by 0.1%. Spending on services, which comprise 65% of consumer spending, was flat.

On a year-to-year basis, incomes and spending moved higher in October:

• Real disposable income growth rose by 3.9% in October, the same rate as September.
• Real personal consumption expenditures grew by 2.7%
• Growth in real spending on goods (3.7%) outpaced spending on services (2.2%) although in dollar terms, Americans spend more than two times as much on services as they do goods.

Consumer prices ticked up by 0.1% in October and were up over the year by 0.2%. Excluding food and energy, prices advanced by 1.3%.

Personal income growth in October taken together with weaker than expected spending implies consumers were in a good position ahead of the holidays. The next two months will tell if higher incomes translate to an increase consumer spending and a happy holiday season for the nation’s retailers.

Source:  http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm