Personal Income:is a measure of income received by households from employment, investments, and transfer payments. The largest component of personal income is wages and salary from employment. Data is also released monthly When judging personal income one can look at several trends to indicate income. (Next Slide)
Trends in Personal Income Growth: can indicate future consumer spending patternsTrends in Savings rates: reflect balance between income and spending growth, indicator of consumer credit qualityChanges in Consumer Expenditures: weakness in expenditure growth is a weakness in consumer demand, which leads to a weaker economy. Sometimes even a recession, because consumer spending makes up 2/3 of GDP.Changes in growth in the Core PCE deflator: a measure of consumer price inflation
Personal income was essentially unchanged in September, it had risen 0.1% in each of the prior two months. Wage income fell 0.2%.Income growth is being supported by government Spending declined 0.5%. Decline in spending was expected, as initial gains were generated by auto sales created by the cash for clunkers program. The savings rate rose from 2.8% to 3.3%. Consumers showed they were more eager to save. They have increased their savings in an attempt to get their debts under control. Consumer savings should continue to rise as they work to rebuild their finances.
Personal income increased 0.2% in August, This was the second consecutive month such growth was noticed. It also confirms that modes income gains appear to have returned. Personal Income was unchanged in September.
Over the past five years there seems to be an overall downward trend in personal income.
10 economic data series:Spread between the 10-year treasury and the funds rateM2 money supplyAverage workweek in manufacturingManufacturers’ new orders for consumer goodsS&P 500Average weekly initial unemployment claimsVendor performance component of the NAPM indexHousing permitsConsumer expectationsManufacturers’ new order for nondefense capital goods
Money & Banking
GDP Sector Status Report<br />Ben Araya- Personal Income<br />Brett Hart- GDP<br />Rob Kunces- Index of Leading Indicators<br />Brad Neumyer- P & C<br />November30, 2009<br />
Personal Income<br />Income received by households from employment, investments, and transfer payments.<br />Wages and Salary<br />Released monthly<br />
Personal Income: what to look for<br />Trends in personal income growth<br />Trends in savings rates<br />Changes in consumer expenditures<br />Changes in growth in the core PCE deflator<br />
Current Situation<br />Personal income was unchanged in September<br />Spending declined 0.5% <br />Savings rate increase to 3.3%<br />
REAL GDP<br />Real GDP is an inflation-adjusted measurement of the value of all the goods and services produced in a fiscal year, expressed in base-year prices. This is referred to as “constant-price”<br />
REAL GDP<br />The US economy expanded 3.5% in the third quarter. The first growth since the second quarter of 08. Growth came primarily from consumer spending, exports, inventory investment, homebuilding and federal government spending.<br />
Recent Real GDP<br />3Q GDP 3.5%<br />Since the latest financial crisis the GDP has been on a negative decline, until this quarter.<br />Economist feel GDP will continue to grow but the growth will not be as strong<br />Consumers must sustain their gains in spending without government help<br />Consumption 09Q2: -.87 09Q3: 3.35<br />Fixed Res Investment 09Q2: -23.2 09Q3: 23.28<br />Government 09Q2: 6.72 09Q3: 2.32<br />
Conference Board Leading Indicator - What is it?<br />A weighted average of 10 key economic data series that is released monthly.<br />Is a strong predictor of recessions<br />Has successfully predicted each of the eight recessions since 1950.<br />The 10 variables have historically turned downward before a recession and upward before an expansion.<br />Weakness: Lag between the a turn in the index and the economy makes predictions delayed and therefore more difficult to institute a new economic policy.<br />
Conference Board Leading Economic Index<br /> (LEI) for the U.S. increased 0.3 percent in October, following a 1.0 percent gain in September, and a 0.4 percent rise in August.<br />5.7 percent increase in the LEI since March-2009 continuing a 6 month upward trend.<br />Index of consumer expectations, building permits, index of supplier deliveries (vendor performance), and manufacturers’ new orders for nondefense capital goods were negative contributors in October.<br />The LEI has increased 7 consecutive months.<br />LEI is up %4.2 from last year at this time and is the fastest growth rate since 2005.<br />
Analysis & Prediction<br />GDP growth in the 3rd quarter is expected to reach an annualized rate of 3%.<br />4th quarter predictions see GDP rate slowing down due to consumer balance sheets still not at their previous levels.<br />Slow job creation and the end of the clash for clunkers program will see the high numbers of September come back down.<br />Depending on how fast firms replenish their workforce will determine the length and velocity of the recovery of the economy.<br />The labor market and slow housing market recovery support the view of a slow paced recovery.<br />
Analysis & Prediction Continued…<br />November and December are expected to be up again to end 2009 but their percent change increase is to be small.<br />Consumer confidence and stability in the financial market will keep GDP positive but consumer spending is slowed by employment recovery.<br />High national unemployment in manufacturing will limit growth for the remainder of the year.<br />The housing market recovery has slowed and is expected to slow recovery in 2010.<br />
CurrentData- Productivity & Costs<br />Productivity growth for the 3rd quarter rose 9.5% at an annualized rate<br />There was a steep drop in unit labor costs<br />Firms cut back on labor at a rapid pace<br />Although there is growth, the gains in productivity will limit the need for new hires<br />
Change By Sector<br />Nonfarm business productivity rose 9.5%<br />Output in the nonfarm business sector rose 4%<br />Nonfarm business labor costs fell 5.2%<br />Manufacturing productivity rose 13.6%<br />
Why Did This Happen? Where Is It Going?<br />There has been a steep drop in hours worked relative to output<br />This signifies a realignment of the workforce is to maximize profits for the time being until aggregate demand begins to increase<br />Substantial firming of aggregate demand as well as net job growth are expected to take place in mid-2010<br />