Personal Income Rises 0.3% in August; Spending Increases 0.5% While Prices Fall

Other than the employment report, the report on Personal Income and Outlays for August from the Bureau of Economic Analysis was probably the most important economic release of this past week, as this is the report that gives us the monthly data on our personal consumption expenditures (PCE), which is nearly 69% of GDP, as well as the important monthly personal income data, total personal savings and the national savings rate, in addition to the price index for PCE, the inflation gauge the Fed targets, and which is used in this report to adjust both personal income and consumption expenditures for inflation to arrive at 'real' change figures.  Like the GDP reports, all the dollar amounts referenced by this report are seasonally adjusted and at an annual rate; so the actual monthly dollar changes, which are not reported, are thus on the order of one twelfth of the reported amounts.. However, the percentage changes are expressed as a month over month change and are used within the report as if they refer to the annualized amounts, so the two are frequently conflated in the media...

Total personal income increased in August at a seasonally adjusted and annualized $47.3 billion rate, to what would be a gross national personal income of $14,860.8 billion annually, which was 0.3% higher than in July, when personal income increased by 0.2% over June. Disposable personal income (DPI), which is total income after taxes, increased at an annualized rate of $35.2 billion to $13,111.4 billion annualized, which was also a 0.3% increase over July, while July's DPI was also up 0.2% over June. Increases in private wages and salaries accounted for $30.4 billion of the annualized August personal income gains, with service industry payrolls increasing at a $24.6 billion rate, goods producing industry payrolls rising $6.0 billion, and government payrolls up by $1.4 billion..  Increases in supplements to wages and salaries, such as employer contributions to pension plans, accounted for another $4.7 billion of August's annualized increase, while employee contributions for government social insurance, which is subtracted from the personal income figure, increased at a $4.3 billion rate.  Meanwhile, proprietors' income decreased at a $8.5 billion rate in August, mostly due to a $9.7 billion decrease in farm owners incomes, as incomes of individual proprietors of other types of business were up $1.4 billion.. Other sources of the August personal  income changes included rental income of individuals, which increased at a $6.3 billion clip in August, personal interest and dividend income, which fell at a $0.2 billion rate, and personal transfer payments from government programs, which increased at a $17.2 billion rate..

Meanwhile, seasonally adjusted personal consumption expenditures (PCE), rose at a $57.5 billion annual clip to $11,980.6 billion in August, which was 0.5% higher than July’s annualized figure, when the increase in PCE over June was not statistically significant.. Personal outlays for services increased at a $41.0 billion rate to an annualized $7,968.9 billion, personal spending for durable goods rose at a $23.3 billion rate to $1,331.0 billion annually, while personal consumption of non-durable goods fell at a $6.7 billion annual rate to an annualized $2,680.8 billion.. Total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $60.4 billion in August to $12,406.1 billion, in contrast to the increase of just $3.5 billion in July outlays..  The increase in outlays left personal savings, which is disposable personal income less total outlays, at $705.3 billion for the month, down from the savings of $730.5 billion in July..  As a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell from 5.6% in July to 5.4% in August... 

While personal consumption expenditures account for over 68% of our GDP, before their change is included in the quarterly computation of the change in real GDP they will be adjusted for inflation first, to give us the real change in consumption, and hence real goods and services produced for that consumption.  That's done with the price index for personal consumption expenditures, which is included in this report, which is a chained price index based on 2009 prices = 100..  That index fell to 109.079 in August from 109.130 in July, meaning that month over month inflation actually fell by .05%, and hence the personal consumption figure for August will have to be adjusted up by that fraction.   However, in the one significant digit rendering of this report, real (inflation adjusted) personal consumption is still listed as increasing by 0.5% for August, as in like manner the change in real disposable income, or the purchasing power of disposable income, also increased by 0.3% for August, same as before the adjustment...

Our FRED graph below, which can also be viewed as an interactive, shows monthly real disposable personal income in blue and real personal consumption expenditures in red since January 2000, with the scale in chained 2009 dollars for both on the left; also shown on this same graph in green is the monthly personal savings rate over the same period, with the scale of savings as a percentage of disposable income on the right margin.  The spike in income and savings at the end of 2012 was a result of bonuses and income manipulation before the year end fiscal cliff; the earlier spikes were as a result of the tax rebates enacted as a fiscal stimulus under George Bush.  Although it may appear from the graph that real disposable income has been accelerating over the past 13 years, real DPI as shown below is not adjusted for increases in the population; on a per capita basis, real DPI is up just 21.1% over the span of this graph…    

August 2014 income and outlays

(the above was excerpted from my weekly summary at MarketWatch 666)



wages are not income

Just a FYI for even though the graph is flat, last calculation real wages haven't kept up with inflation.

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sources of income

the sources of the August income increase are innumerated in my second paragraph...this was an unusual month in that wages were the primary driver; for many months this year, wage increases have been less than increases in rental income & income on assets..

NB: wages and salaries make up only half of "income" in this report; table 1 here details all the sources:

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An amplification for our readers

These are aggregate income, the super rich are included. Most people think wages when one says income, not so, not at all so. You of course know this.

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