Personal income spiked 1.0% in January, while personal consumption increased 0.2%
Supporting Image for Blog Post

 
Implications:  Personal income soared 1% in January, but mainly for an unusual reason: the government counts this year's drop in the payroll tax as an increase in income.  However, the underlying upward trend in income continues, even apart from this accounting quirk.  "Real" (inflation-adjusted) private-sector wages and salaries plus small business profits are up 3.6% in the past year.  Meanwhile, consumer balance sheets are much healthier.  Financial obligations – monthly payments like mortgages, rent, car loans/leases, as well as other debt service – are the smallest share of disposable income since 1995.  So we expect the slight decline in real spending in January – the first dip in eight months – to be an outlier.  On the inflation front, consumption prices are up only 1.2% versus a year ago but are accelerating, with prices up at a 2.2% annual rate in the past six months and a 2.6% rate in the past three months.  In other news this morning, manufacturing is incredibly strong and home sales weakened slightly.  The Chicago PMI, a measure of manufacturing in that region, increased to 71.2 in February, the highest level since 1988, from 68.8 in January.  The consensus had expected a decline.  Meanwhile, pending home sales, which are contracts on existing homes, declined 2.8% in January.  This is the second straight dip, suggesting existing home sales, which are counted at closing, will fall slightly in February.

Click here for the full report.
Posted on Monday, February 28, 2011 @ 11:02 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.