Personal Income Rose 0.4% in June; Personal Spending Rose 0.2%

Other than the employment report and the GDP report itself, the monthly report on Personal Income and Outlays from the Bureau of Economic Analysis is the most important economic release we see monthly, as it gives us the monthly data on our personal consumption expenditures (PCE), which accounts for more than 2/3rds of GDP, our personal income and disposable personal income data, our savings and savings rate, and the PCE price index, the inflation gauge the Fed targets.  Like the GDP report last week, the June Income and Outlays report also went through an annual revision with backward revisions to 2012 for all elements reported here, while personal income and personal current taxes were revised from January 1976 through May 2015, due to incorporation of a new classification of federal refundable tax credits.   Since all the revisions made to personal consumption expenditures had already been incorporated into the GDP revisions that we looked at last week, today we'll only consider those revisions from recent months that are relevant to putting this month's change in perspective.

Like the GDP report, all the dollar values reported here are at an annual rate and seasonally adjusted, ie, they tell us what income, spending and saving would be for a year if June's adjusted income and spending were extrapolated over an entire year.  Confusingly, however, the percentage changes are computed monthly, from one annualized figure to the next, and in this case of this month's report they give us the percentage change in each annualized metric from May to June.   Thus, when the opening line of the press release for this report tell us "Personal income increased $68.1 billion, or 0.4 percent, and disposable personal income (DPI) increased $60.6 billion, or 0.5 percent, in June", they mean that the annualized figure for all types of personal income in June, $15,287.1 billion, was $68.1 billion or 0.4% greater than the annualized personal income figure for May; the actual increase in personal income in June over May is not given.  Similarly, disposable personal income, which is income after taxes, rose by 0.5%, from an annual rate of $13,304.6 billion in May to an annual rate of $13,353.4 billion in June.  With this release, the increases in both personal income and disposable personal income for May were both revised lower, from the originally reported 0.5% increases to increases of 0.4%...

The contributors to the June increase in personal income, listed under "Compensation" in the press release, are also annualized amounts, all of which can be seen in the Full Release & Tables (pdf) for this release, the document we'll be referencing here.  So when the press release says, "Wages and salaries increased $18.3 billion in June," that really means wages and salaries would rise by $18.3 billion in a year’s time if June's seasonally adjusted rate of increase were extrapolated over an entire year, just as interest and dividend income, the largest contributor to the personal income increase, rose at a $20.2 billion annual rate in June.   Likewise annualized are the other sources of June income that add up to the $68.1 billion increase in personal income annually cited in the opening line: business proprietors' income increased at a $6.7 billion annual rate, farmer's incomes increased at a $4.3 billion rate, rental incomes increased at a $7.4 billion annual rate, supplements to wages and salaries, such as employer contributions to pension plans, increased at a $4.4 billion annual rate, personal current transfer receipts from government programs increased at a $8.6 billion rate, and individual contributions for government social insurance, which subtract from the total income figure, increased at a $1.8 billion annual rate in June.

Meanwhile, seasonally adjusted personal consumption expenditures (PCE) for June, which were included in the change in real PCE in 2nd quarter GDP, rose at a $25.9 billion annual rate to a level of $12,255.3 billion in consumer spending annually, 0.2% higher than in May, which itself was revised from the originally reported 0.9% increase to an increase of 0.7%.  That current dollar increase in June spending was driven by a $33.0 billion annualized increase to an annualized $8,266.1 billion spending for services and a $10.1 billion increase to $2,671.1 billion in annualized spending for non-durable goods, while spending for durable goods fell at an annualized $17.2 billion rate to an annualized $1,318.1 billion.  Total personal outlays for June, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $30.5 billion to $12,706.2 billion, which left personal savings, which is disposable personal income less total outlays, at $646.3 billion in June, up from the revised $616.2 billion in personal savings in May, which was originally reported at $685.5 billion, on higher income and outlays.  As a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 4.8%, from 4.6% in May, which was originally reported at 5.1%..

While our personal consumption expenditures accounted for 68.4% of our second quarter GDP, before they were included in the measurement of the change in our output, they were first adjusted for inflation, to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption.  That's done with the price index for personal consumption expenditures, included in this report, which is a chained price index based on 2009 prices = 100.   From Table 9 in the pdf, we find that that index rose from 109.405 in May to 109.658 in June, giving us a month over month inflation rate of 0.231%, which BEA reports as an increase of +0.2%.   Table 11 gives us a year over year PCE price index increase of 0.3%, and a core price increase of 1.3% for the year, both well below the Fed's inflation target.  Applying the June inflation adjustment to the change in June PCE shows that real PCE was down 0.02%, which BEA reports as a 0.0% change in the tables.  Note that when those price indexes are applied to a given month's annualized PCE, it yields that month's annualized real PCE in chained 2009 dollars, which aren't really dollar amounts at all, but merely the means that the BEA uses to compare one month's or one quarter's real goods and services produced to another.  Those results are shown in tables 7 and 8 of the PDF, where the quarterly figures given are identical to those shown in table 3B in the GDP report, and which were used to compute the contribution of real personal consumption of goods and services to GDP.

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