The Personal Income and Outlays report is issued by the Bureau of Economic Analysis (BEA) monthly. This report provides a measure of income received from wages, salaries, and investment income, as well as an estimate of personal consumption on goods and services, interest payments made on non-mortgage debt and certain transfer payments. This is an important economic indicator since personal income is one of the largest factors driving consumer demand. If people have more disposable income, they will generally spend more money or increase savings. In addition, the PCE Price Index (with food and energy removed) is considered by the Federal Reserve as its key measure of inflation.
Personal income recovered slightly in May, increasing by $69.4 billion, or 0.5 percent, and disposable (after tax) personal income increased $57.0 billion, or 0.5 percent. Expenditures, on the other hand, increased just $29.0 billion, in May suggesting that consumers were starting to tighten their belts. The savings rate was 3.2 percent in May, compared with 3.0 percent in April.
Additional bad news for May was that transfer payments from the government continued to increase at a faster rate than did wages. Wage income was up 0.5 percent, but transfer payments rose at 0.8 percent (though this is off of a decline in the prior month). Payments to entrepreneurs fell, but payments to capital have been rising for the past two months.
The PCE price index (without food and energy) rose at an annualized rate of just 1.1 percent, suggesting that the Federal Reserve’s main indicator of inflation is still flat.
While extremely important for many mainstream economists, the retail sales figures say little about production or whether the overall economy is strengthening. They do suggest that American’s continue to spend what they make meaning that there overall debt levels are increasing. Companies hoping for a consumer fueled surge in growth are unlikely to see this since consumers are tapped out and are actually retrenching in terms of their purchases of “stuff.” At the same time consumers are starting to save again and are beginning to see an increase in investment income suggesting that even though the economy is growing slowly they have already adjusted their lifestyles to a weak economy and are now beginning to save again for the future.