September 30, 2011 4:01 pm

First US personal income fall for two years

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US personal income fell 0.1 per cent in August, the first decline in almost two years, underscoring the strain on households and a bleak sign for economic growth.

The data, released on Friday by the US Commerce Department, came in worse than the expected 0.2 per cent rise, and has not seen a decline since October 2009. Wage and salary income declined 0.2 per cent after a 0.3 per cent rise in July on weakness in private services.

US consumer sentiment improved slightly in late-September but concerns about the future of the economy persisted, reflecting anxiety over the jobs market and turmoil in global financial markets.

Growth in consumer spending slowed month-on-month, in line with expectations, up 0.2 per cent in August from a 0.7 per cent jump the previous month. When adjusted for inflation, however, spending was unchanged after rising 0.4 per cent in July.

The US economy created no new jobs in August and the jobless rate hovers around the 9 per cent mark.

The personal savings rate fell to 4.5 per cent in August, the lowest since December 2009, from 4.7 per cent, as income drops and poor jobs environment have led Americans to dip into their savings.

“Without income and without wealth growth, spending can only come from savings. The savings ratio did decline and is now down sharply from 5.3 per cent in June to 4.5 per cent in August, but this smacks of a desperate US consumer,” said Alan Ruskin, analyst at Deutsche Bank.

“To that extent, the underlying picture for future consumption growth is worse than the last couple of personal consumption expenditure numbers,“ he added.

The new data showed inflationary pressures year-on-year, with the price index for personal consumption expenditures rising 2.9 per cent, the largest increase since October 2008, after a 2.8 per cent rise in July.

“The consumer needs job growth. Higher inflation continues to hurt consumers as price increases outstrip gains in wage incomes,” said John Ryding, analyst at RDQ Economics.

The core PCE index – the US Federal Reserve’s preferred measure of inflation – increased 1.6 per cent year-on-year after rising by the same margin in July. Fed policymakers say inflation seems to have moderated after a jump in prices earlier this year.

Meanwhile, the Thomson Reuters/University of Michigan consumer sentiment index rose to 59.4 in the final September reading, up from 57.8 earlier this month, according to data released on Friday. The data fell in line with analysts’ expectations.

The final reading for August stood at 55.7.

In a strong economy, the range tends to fall between 90 to 100, but the gauge has fallen sharply from the 60s and 70s recorded in the spring and early summer amid political wrangling over the US debt ceiling and broader upheaval in global markets.

In spite of the slight uptick, consumers still feel uneasy about employment conditions and the volatility of global financial markets. The index is a key indicator of longer term consumer spending, which accounts for about 70 per cent of US economic activity.

Friday’s figures showed that consumers’ assessment of current conditions rose to 74.9 from 74.5 in early September and from August’s 68.7. Consumer expectations, an indicator that asks how well off people expect to be in a year, edged up to 49.4 from 47 earlier in the month – the lowest level since May 1980.

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