August 03, 2010

Economics Group

Mark Vitner, Senior Economist

mark.vitner@wellsfargo.com ● 704.383.5635
Tim Quinlan, Economist
tim.quinlan@wellsfargo.com ● 704.374.4407

Personal Income Was Largely Unchanged In June

Personal income and consumer spending were unchanged in June. Prices declined 0.1 percent, however,
which means spending rose slightly after adjusting for falling prices. The saving rate rose to 6.4 percent.

Personal Income Was Unchanged In June Personal Income

Month-over-Month Percent Change
Personal income was unchanged in June, with weakness evident across 4% 4%

most major categories. Wages and salaries fell 0.1 percent and proprietors’
3% 3%
income fell 0.4 percent. Nearly all the drop in wages and salaries was in
the private sector, where wages fell 0.1 percent. June marks the first time 2% 2%

personal income has been unchanged since September of last year and is
another sign that economic activity is losing momentum as various 1% 1%

stimulus programs wind down. 0% 0%

Personal tax payments fell 0.2 percent in June, which helped push after-tax
income up slightly. The rise in after-tax income combined with no change -1% -1%

in consumer spending pushed the saving rate up to 6.4 percent, which is -2% -2%
the highest it has been since May 2009. The rise in the saving rate is good Personal Income: Jun @ 0.0%
news because it means the adjustment to the negative wealth effect from -3% -3%
2000 2002 2004 2006 2008 2010
falling home prices and the financial crisis is largely complete. This means
spending will likely rise more closely in line with after-tax income growth Personal Saving Rate
Disp. Personal Income Less Spending as a % of Disp. Income
over the next few quarters. Unfortunately, income growth appears to be 15% 15%

decelerating.
The personal consumption deflator fell 0.1 percent in June, marking the 12% 12%

second consecutive decrease. With the drop, real personal income rose
0.1 percent. Real after-tax income actually rose 0.2 percent. The decline in 9% 9%
prices helped boost purchasing power and allowed real personal
consumption expenditures to rise 0.1 percent in June.
6% 6%
Real personal consumption expenditures ended the second quarter slightly
above their second quarter average and are currently running at 0.5 percent
3% 3%
annual rate above the second quarter average. Early data for July suggest
Personal Saving Rate: Jun @ 6.4%
spending was fairly weak that month. The expiration of extended Personal Saving Rate, 12-Month M.A.: Jun @ 5.7%

unemployment benefits likely cut into spending last month. We may get a 0%
60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08
0%

bit of a bump in August, however, when benefits began flowing again and
one-time catch-up payments were delivered. We are expecting real "Core" PCE Deflator
Both Series are 3-Month Moving Averages
personal consumption expenditures to rise at just a 1.0 percent annual rate 5% 5%
3-Month Annual Rate: Jun @ 1.1%
during the current quarter, which will likely hold real GDP growth to Year-over-Year Percent Change: Jun @ 1.5%

around a 2 percent annual rate or less. 4% 4%

The core PCE deflator, which is widely thought to be the Fed’s preferred
inflation measure, was unchanged in June, following gains of 0.1 percent 3% 3%
during each of the two previous months. The core PCE deflator has
decelerated to just a 1.1 percent annual rate over the past three months.
2% 2%
Most of the slowdown is due to still moderating housing costs. Falling food
and energy prices have been the major forces holding down overall
inflation. Food prices are being held back by an abundant harvest and 1% 1%

changing consumer buying habits, which are leading to more price cutting.
0% 0%
92 94 96 98 00 02 04 06 08 10

Source: U.S. Department of Commerce and Wells Fargo Securities, LLC.

Wells Fargo Securities, LLC Economics Group

Diane Schumaker-Krieg Global Head of Research (704) 715-8437 diane.schumaker@wellsfargo.com

& Economics (212) 214-5070

John E. Silvia, Ph.D. Chief Economist (704) 374-7034 john.silvia@wellsfargo.com

Mark Vitner Senior Economist (704) 383-5635 mark.vitner@wellsfargo.com
Jay Bryson, Ph.D. Global Economist (704) 383-3518 jay.bryson@wellsfargo.com
Scott Anderson, Ph.D. Senior Economist (612) 667-9281 scott.a.anderson@wellsfargo.com
Eugenio Aleman, Ph.D. Senior Economist (612) 667-0168 eugenio.j.aleman@wellsfargo.com
Sam Bullard Senior Economist (704) 383-7372 sam.bullard@wellsfargo.com
Anika Khan Economist (704) 715-0575 anika.khan@wellsfargo.com
Azhar Iqbal Econometrician (704) 383-6805 azhar.iqbal@wellsfargo.com
Ed Kashmarek Economist (612) 667-0479 ed.kashmarek@wellsfargo.com
Tim Quinlan Economist (704) 374-4407 tim.quinlan@wellsfargo.com
Kim Whelan Economic Analyst (704) 715-8457 kim.whelan@wellsfargo.com

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