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By the Numbers

Featuring brief segments of economic analysis from our senior economist Michael Bazdarich, PhD.

The economic analysis we previously featured in By the Numbers is now available on the Western Asset Blog. This page will no longer be updated.

Income Gains Modest, Spending Gains Better

Personal income rose 0.3% in August, from a July level essentially unrevised from the estimates released a month ago, and ditto for disposable income. The private-sector wage and salary income component of personal income (43% of total personal income) rose a more respectable 0.5% from an also unrevised July estimate.

We made a big deal out of the downward revisions to July payroll job growth (see our "By The Numbers" installment from September 7), but while those revisions took a big bite out of monthly job growth, they amounted to only 0.05% of total jobs, so there was only a negligible revision to July personal incomes.

The first chart shows the underlying trends in disposable income and private-sector wage and salary income. The chart excludes the effects of the 2017 tax reform, and that change did boost disposable income growth early this year. Apart from that fiscal policy boost, though, you can see that income growth has been quite steady, which would seem to fly against consensus expectations for faster growth in consumer spending.

As for consumption activity, we have had some nice boosts to retail sales growth in both May and July, and you can see that reflected in goods consumption growth (blue line in second chart). Underlying services consumption, however, has been only steady.

Our outlook for consumption has been less upbeat than the consensus in that we expect steady growth there, at about the same pace as we have seen across recent years. The income growth and services consumption data have been in line with that, but goods consumption has been more buoyant in recent months. We’ll see whether that continues to be the case in months to come.

Income Growth and Real Consumer Spending by Type
Income Growth and Real Consumer Spending by Type
Source: Bureau of Economic Analysis. As of 31 Aug 18

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 45 years of experience to his position. "By the Numbers" will address economic data releases that are pertinent to a broad range of investors.

Prior to joining the Firm in 2005, Mike ran his own consulting firm, MB Economics. He earned his PhD in Economics at the University of Chicago.

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