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Definition
Personal income represents the income that households receive from all sources including wages and salaries, fringe benefits such as employer contributions of private pension plans, proprietors' income, income from rent, dividends and interest and transfer payments such as Social Security and unemployment compensation. Personal contributions for social insurance are subtracted from personal income.
Personal consumption expenditures are the major portion of personal outlays, which also include personal interest payments and transfer payments. Personal consumption expenditures are divided into durable goods, nondurable goods and services. These figures are the monthly analogues to the quarterly consumption expenditures in the GDP report, available in nominal and real (inflation-adjusted) dollars. Economic performance is more appropriately measured after the effects of inflation are removed.
The monthly personal consumption expenditure price index, which is the basis for the quarterly version in the GDP release, is part of this report. It is widely followed by market players, economists and Federal Reserve officials. This inflation index is chain-weighted and reflects more up-to-date spending patterns than the CPI which measures a fixed basket. The core PCE price index is the Fed's preferred measure of inflation.
Importance
Income is the major determinant of spending -- U.S. consumers spend roughly 95 cents of each new dollar. Consumer spending accounts directly for more than two-thirds of overall economic activity and indirectly influences capital spending, inventory investment and imports.
Interpretation
Increases (decreases) in income and consumption cause bond prices to fall (rally). As long as spending isn't inflationary, the stock market benefits because greater spending spurs corporate profits. Financial market participants pay somewhat less attention to personal consumption expenditures than to retail sales, which are released earlier in the month. However, they do closely monitor personal income and the PCE deflator.
Changes in personal income signal changes in consumer spending. For instance, a period of rapid income growth may signal future gains in personal consumption expenditures as well. Conversely, a period of declining income growth could signal an impending recession. While consumers often still must purchase necessities, discretionary purchases may decline, or moderate.
In the 1990s, consumers became more likely to increase spending when they saw their stock portfolios increase in tandem with the stock market. When the stock market fell, wealth growth shifted to the housing market. Consumers who saw their home equity rise, were more likely to spend faster than their income growth.
Personal income is a comprehensive figure, but also incorporates taxes consumers must pay. By removing personal tax payments from personal income, we are left with disposable income. This is what consumers have left to spend on goods and services. Adjusting for inflation reveals growth in real disposable income.
Frequency
Monthly.
Source
Bureau of Economic Analysis, U.S. Department of Commerce.
Availability
Usually the last week of the month.
Coverage
Data are for the previous month. Data for June are released in July.
Revisions
Monthly, data for the prior three months are revised to incorporate more complete information. Annually, new seasonal adjustment factors are introduced every July. These revisions affect at least five years of data. The magnitude of the revisions is typically small.
Why Investors Care •
Brief Definitions •
Expanded Definitions
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