Personal Income Rose Solidly In December

Personal income rose 0.5% in December and revised data for the previous two months show income rising slightly faster than first reported. Consumer spending rose 0.2% during the month, but all of the gain was due to higher prices. After adjusting for inflation, spending was unchanged and rose 2.0% over the past year.

Personal Income Still Looks Pretty Solid

• Personal income rose 0.5%, with wages and salaries rising 0.4%. The personal income data do not show anywhere near the deceleration the employment data have, which suggests we could see a rebound in tomorrow’s January report.
• Wage and salary growth is the most important determinant of consumer spending and still shows solid year-to-year gains.

Higher Gasoline Prices Are Cutting Into Purchasing Power

• While income is up solidly, paychecks are not going as far as they used to. Higher gasoline prices helped send the personal consumption deflator up at a 3.9% pace over the past three months. This key inflation gauge is up 3.5% over the past year.
• Real after-tax income rose at just a 0.3% pace over the past three months, which is clearly too little to sustain spending.

Wachovia Corporation
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