Personal Income and Outlays

Released on 6/28/2010 8:30:00 AM For May, 2010 Prior Consensus Consensus Range Actual Personal Income - M/M change 0.4 % 0.5 % 0.3 % to 0.6 % 0.4 % Personal Income - Yr/Yr change 2.5 % 1.6 % Consumer Spending - M/M change 0.0 % 0.2 % -0.2 % to 0.3 % 0.2 % Consumer Spending - Yr/Yr change 4.6 % 4.6 % Core PCE price index - M/M change 0.1 % 0.1 % 0.1 % to 0.1 % 0.2 %

Highlights The consumer sector got another boost with a jump in spending power in May. Consumer spending was sluggish but mainly related to a drop in gasoline prices. Personal income in May rose a solid 0.4 percent, following a 0.5 percent advance in April. Analysts had called for a 0.5 percent increase in personal income for the latest month. The key wages & salaries component gained 0.5 percent, matching April's improvement. A jump in auto sales helped offset softness in gasoline and other subcomponents in nondurables. Overall, personal consumption rose a modest 0.2 percent, following no change in April. The May figure came in equaled the market forecast for a 0.2 percent increase. By components, PCEs were led by a 0.8 percent boost in durables-reflecting motor vehicle sales. But services also were robust with a 0.5 percent jump. Nondurables declined 0.9 percent with prices effects explaining most of the weakness. Still, nondurables slipped 0.2 percent in real terms. Inflation was mixed in May. The headline PCE price index was flat in May as was also the case the prior month. The core rate, however, firmed to 0.2 percent from 0.1 percent in April. Overall, the consumer sector is slowly gaining strength in terms of spending power. Purchases have been a little erratic due to off and on auto incentives and consumer caution in general. Overall, the consumer sector took one step forward in May, helping the recovery continue. On the news, equity futures were down slightly as were Treasury yields. The dollar was little changed. More detail coming. Please check back.

Market Consensus Before Announcement Personal income posted a solid 0.4 percent increase for April, matching the gain the month before. Importantly, the latest increase was in what really counts as the wages & salaries component advanced 0.4 percent after rising 0.3 percent in March. But overall, personal consumption was flat, following a 0.6 percent rise the prior month. The April decline in PCEs was led by a 0.6 percent drop in nondurables and was mostly price related. Inflation at the consumer level is still almost nonexistent. The headline PCE price index was unchanged in April-easing from up 0.1 percent in March. The core rate also was soft, gaining only 0.1 percent and matching both March and the consensus forecast. More recently, aggregate weekly earnings were up 0.6 percent in May, suggesting a nice boost in the wages & salaries component of personal income. But spending may be down. Retail sales excluding autos dropped 1.1 percent in May. However, unit new motor vehicle sales rebounded 3.8 percent for the month and should soften the overall decline in sales or even boost it. PCE inflation should be soft based on a 0.2 percent decline in May's headline CPI and a 0.1 percent rise in the core CPI.

Definition Personal income is the dollar value of income received from all sources by individuals. Personal outlays include consumer purchases of durable and nondurable goods, and services.  Why Investors Care

Changes in taxes or social security cost of living adjustments can cause some sharp variations in monthly disposable income growth. However, on the whole, monthly changes in disposable income fluctuate less than monthly changes in personal consumption expenditures. Data Source: Haver Analytics

Monthly changes in personal consumption expenditures are usually skewed by large changes in spending on durable goods. Spending on nondurable goods and services tend to be less volatile from one month to the next. Data Source: Haver Analytics