Transcript PersonalIncome

Personal Income and Spending
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Published by: Bureau of Economics
Analysis (BEA)
Frequency: monthly
Period Covered: prior month
Market significance: moderate to
high
Web site: www.bea.gov
What is the Personal Income and
Spending?
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Records the
income Americans
receive, how much
they spend, and
what they save
Personal
Consumption
Expenditure (PCE)
is the largest
component of the
GDP
25%
75%
Other
components
PCE
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This report is broken into three main
categories:
• Personal Income
• Personal Spending
• Personal Savings
Personal Income
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Personal Income represents the
money households receive before
taking out taxes.
It is also known as Disposable
Personal Income (DPI)
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Major sources of income
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Wages and Salaries
Proprietors’ Income
Rental Income
Dividend Income
Interest Income
Transfer payments 13%
Other labor Income
56%
8%
1.4%
4.4%
11%
6.2%
*Profits households receive from the sale of
assets such as stock, bonds, or real state are
excluded from personal income.
Personal Spending
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Formally known as:
• Personal Consumption Expenditures
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Personal Consumption Expenditures
accounts for 2/3 of all economic
activity, because of this is that
changes in PCE can lead to major
shifts in the business cycle.
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Personal Consumption Expenditures
include:
• Durable Goods
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Expensive items that usually last more than
3 years
• Non-durable Goods
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30%
Items that last less than 3 years. Food,
clothing can be included here.
• Services
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12-14%
60%
There has been a jump from 40%-60% in
the past 40 years.
Personal Savings
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What is left over after spending on goods,
services, and interest payments on credit
cards and loans.
Money that usually ends up in savings
deposits, bank CD’s, money market
accounts, stocks, and bonds.
Personal Savings Rate, the percentage of
disposable personal income that is saved.
• 1960’s
• 2000’s
above 8%
below 3%
Importance of this Indicator
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Consumers rule the economy.
Consumer expenditures are the main
driving force of sales, imports,
factory output, business investments
and job growth in the US.
Besides inflation, personal Income
can have a great impact on when
and how much consumers spend.
Keys to Interpret this Indicator
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Changes in household wealth play an
important role in determining
consumer spending behavior
• It is believed that for every dollar
increase in the value of one’s stock
portfolio, consumers spend an additional
3-6 cents.
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Year-end wages and salary amounts
can be distorted due to companies
that distribute bonuses.
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The increase of disposable personal
income in comparison to inflation.
Any change in in spending behavior has a
notorious impact on the overall economy
If interest payments exceed 2%-2.5%
over a prolonged period of time, it might
indicate that households are experiencing
financial stress.
Abrupt movements in the personal savings
rate can indicate a growing concern
among households over their financial
future.
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A sudden increase in the savings rate
means that people are becoming
nervous about their income and job
security, just as a sharp fall in the
personal savings rate can be
troubling as well.
Rising wages and job stability
stimulate orders for durable goods.
• Orders for durable goods can be an
important indicator of a recession 6-12
months before or they can be the
turning point one or two months before
a recession ends and recovery begins.
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By looking at changes in PCE for
three-month period it is possible to
see how the GDP will do in the
current quarter and beyond.
Latest Release for March 2007
Data Analysis
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Based on the information from this
indicator, we conclude:
• There is a slight increase in income that might
lead to an increase on spending.
• The negative change in PCE might mean that
something is ahead in the economy, it is
recommended to pay attention to PCE in the
following months.
• Personal Saving Rate has declined in the past
months, it might be an indication that
households might have a concern about their
financial future.
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The economy seems to be at a stable
stage, however there are some signs that
the economy might slow down.