Tuesday, June 2, 2009

Much of the increase, which was the largest in 11 months, was due to lower taxes and benefits from government stimulus payments.

TO BE NOTED: From the FT:

US personal incomes show surprise rise

By Alan Rappeport in New York

Published: June 1 2009 14:05 | Last updated: June 1 2009 15:34

US consumers curbed their spending for the second month running in April, in spite of the first rise in income this year, as they continue to cope with the recession and fears of more job cuts.

Personal consumption expenditure fell by 0.1 per cent or $5.4bn last month, less than economists expected and a smaller fall than the previous month’s 0.3 per cent.

Incomes rose for the first time in four months in April, increasing by 0.5 per cent, or $58.2bn, and dashing predictions of another drop. Much of the increase, which was the largest in 11 months, was due to lower taxes and benefits from government stimulus payments.

The commerce department’s closely-watched gauge of prices rose by 0.1 per cent in April, following a slight dip in March. Excluding food and energy, prices rose by 0.3 per cent after rising by 0.2 per cent for two consecutive months. On the year the index was up by 1.9 per cent.

Meanwhile the savings rate, which is measured as the proportion of income left after spending and taxes, rose from a revised 4.5 per cent in March to 5.7 per cent in April, a 14-year high. Economists predict that the savings rate could reach 8 per cent as household wealth has collapsed.

“US rebalancing continues and the quicker the adjustment the more promising are the prospects for consumer spending in the longer-term,” said Alan Ruskin, strategist at RBS Greenwich Capital.

Also offering promise on Monday were figures showing that US manufacturing is shrinking at a slower pace than before, adding to hopes that the worst of the recession is over. The Institute for Supply Management’s factory index rose to 42.8 per cent last month from 40.1 per cent in May, as new orders grew for the first time since November 2007.

”While employment and inventories continue to decline at a rapid rate and the sector continued to contract during the month, there are signs of improvement,” said Norbert Ore, ISM chairman.

Export orders also jumped in May, rising to the highest level since the collapse of Lehman Brothers last September.

“ISM is being lifted partly by a catching-up or rebound after the post-Lehman plunge, during which time companies seem to have slashed their spending more deeply than was sustainable, and partly by an unfreezing of world trade,” said Ian Sheperdson, chief US economist at High Frequency Economics.

Separately on Monday, commerce department figures showed that US construction spending unexpectedly rose in April on the back of stronger investment commercial construction. Construction spending grew by 0.8 per cent to $968.7bn in the month, but is off by 10.7 per cent from the same period a year ago.

Private construction climbed by 1.4 per cent in April, while public construction slipped by 0.6 per cent. Residential construction rose by 0.7 per cent, lifting hopes that the stricken US housing market could be starting to bottom."

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