Personal income is up but spending is down:
The headlines for the Personal Income and Spending report for April were better than expected, with income up 0.5% (consensus -0.2%) and spending down 0.1% (consensus -0.2%).
Disposable personal income rose 1.1% thanks to a boost from the provisions of the American Recovery and Reinvestment Act that reduced personal current taxes and increased government social benefit payments. Excluding those factors, disposable income increased 0.7%.
For the April period, private wage and salary disbursements decreased $1.3 billion, but total wage and salary disbursements were basically flat at $6.46 billion. Proprietors’ income increased $4.5 billion, or 0.4%, rental income increased $2.7 billion, or 3.1%, while personal current transfer receipts increased $45.7 billion, or 2.3%.
Tellingly, real personal consumption expenditures declined -0.1%, which goes to show consumers are still playing it close to the vest when it comes to spending because of the lack of a pickup in wages in the face of a weak labor market. Their conservative approach was evident in the personal savings rate, which rose to 5.7% versus 4.5% in March.
Or, in other words, the private savings rate is increasing while public spending is increasing. I don’t believe this is precisely what the strong advocates for a stimulus package were looking for. At least I hope it isn’t.
It’s still early to make any final pronouncements but I believe that this supports the interpretation I’ve been presenting around here for some time, that too many managers are using the economic downturn as an excuse for trimming payrolls, improving the bottom line in a temporary and illusory fashion, and, consequently, raising their own wages. That may make good business sense. I don’t believe it does but rather constitutes looting. I think it’s both weak management and wrong to fire people in as poor a job climate as we have right now except for the survival of the company. Proprietors’ income rising doesn’t sound like a fight for survival to me.
