Economy

Strong Personal Income and Spending Sets Solid Tone for the Holiday Season

Jon C. Ogg

Personal income increased by 0.5% in November after increasing by just 0.1% in October. Wages and salaries make up the largest component of personal income, and this measure rose by 0.4% in November, after a gain of 0.5% in October. The raw dollar amount was a gain of $101.7 billion in personal income, while disposable personal income rose by $87.7 billion and personal consumption expenditures rose by $64.9 billion. November’s gain in personal income reflected gains in employee compensation, farming income and personal interest income.

The Bureau of Economic Analysis (BEA) showed that the personal consumption expenditures (PCE) price index, used as another measurement of inflation, rose by 0.2% in November. Excluding food and energy, that PCE price index rose by just 0.1%.

According to the BEA data, November’s $37.8 billion increase in real PCE reflected a gain of $22.6 billion in spending for goods and a $17.1 billion gain in spending for services. Spending on new automobiles was the leading contributor of spending within goods, and spending on health care was the leading contributor within services.

On a year-over-year basis, the actual measurement of annualized inflation, November’s price indexes were up 1.5% across the board and were up 1.6% excluding food and energy.

The BEA release also showed that personal spending (outlays) rose by $68.6 billion in November. The personal saving was $1.31 trillion and the personal saving rate, which is measured as personal savings as a percentage of disposable personal income, was 7.9% in November.

It is easy to understand why a gain in personal income is good for the economy. That said, spending ultimately competes with savings, and roughly 70% of gross domestic product (GDP) in the United States is tied to consumer spending activities.