"The feeble business environment is prodding companies to restructure their workforce by laying-off workers, cut hours and change salary structures," resulting in the "lowest level in the history of" personal income, according to BBVA economist Nathaniel Karp.

With the weak labour market in the United States squeezing incomes, the trend is "pushing consumers to decrease consumption," he warned. "Consequentially, we could see a negative change in personal outlays in March."

The consensus expects personal income to decline another 0.2% month-over-month, matching the previous month's contraction, while personal spending is expected to fall 0.1% on the month compared to a 0.2% gain in February.

The view is one shared by many, with the unemployment rate in the U.S. at 8.5% in March, its highest since November 1983, and economists expecting an 8.9% rate in April, which would be the highest rate since September 1983.

However, action from the U.S. government may boost incomes, according to a report from Barclays Capital, which expects a 0.3% decline in U.S. incomes in March and a 0.1% increase in disposable income. "Stimulus payments and automatic stabilizers, like unemployment insurance, continue to offset the weakness from the deteriorating labor market," the report said.

"Most businesses lowered their tax withholding schedules for the 'Making Work Pay Credit' as of April 1, suggesting that the decline in taxes will exceed that of income, leaving consumers with more disposable income," the report noted.

According to Guy LeBas of Janney Montgomery Scott, "Personal incomes are, for the fourth consecutive month, likely to experience boosts primarily from transfer payments - i.e., unemployment insurance - as the jobless rate continues to climb northward." Meanwhile, he expects a "slight nominal and a significant real decline in consumer spending..."

Economists will also focus on the inflation components of the PCE report with core PCE expected to rise 0.2% month-over-month, matching the previous gain and leaving the annual inflation rate unchanged at 1.8%. The PCE deflator is expected to rise 0.7% on the year versus the 1.0% gain in February.

The consensus for positive inflation rates comes "despite the underlying economic weakness," according to TD Securities' Millan Mulraine. "In the months ahead, we expect the core PCE deflator to start easing as the growing economic slack dampens core price pressures," he added.

According to Ellen Zentner, a senior US economist at BTMU, said the consensus "would keep real consumer spending at a +0.2 percent rate," as "falling headline inflation [over the previous months] has provided some support in terms of how much that income can buy."

She noted that, since peaking in July, "lower gas prices have freed up some $200 billion (annual rate) in disposable income."

The PCE report will be released at 8:30 a.m. EDT on Thursday.

By Erik Kevin Franco, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Stephen Huebl, This email address is being protected from spam bots, you need Javascript enabled to view it

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