Economy Watch: Income Drops Slightly in April

By Dees Stribling, Contributing Editor

The Bureau of Economic Analysis reported on Friday that personal income was down $5.6 billion, or a bit less than 0.1 percent, in April. At the same time, people spent less, with personal consumption expenditures dropping $20.5 billion, or 0.2 percent. These declines, though small, are in contrast to increases in personal incomes and personal consumption expenditures during March.

Real personal consumption expenditures—which the BEA calculates by removing price changes—were up 0.1 percent in April, because prices dropped 0.3 percent for the month. Most of the drop was energy, because when food and energy is factored out, prices were up by less than 0.1 percent.

Americans are still saving more than they used to in the early- to mid-2000s, when the savings rate sometimes went negative, but people aren’t quite salting it away as much as during the fearful days of the recession. The BEA reported that personal savings—disposable personal income less personal outlays—was $306.9 billion in April, compared with $301.4 billion in March. The personal saving rate was 2.5 percent in April, the same as in March.

Consumers feeling chipper

Consumers seem to be pulling out of their funk: the Conference Board’s consumer confidence index was up last week, and on Friday the Reuters/University of Michigan’s consumer sentiment index improved considerably as well in May. The index was up to 83.7 for the mid-May reading, and then to 84.5 for the end of the month, compared with 72.3 for mid-April’s reading, which was up to 76.4 by the end of April.

To put the mid-May number in context, that’s the highest the index has been since July 2007, when housing was looking a little shaky but not quite like an exploding Death Star, Lehman Brothers still has a blue-chip reputation and unemployment was officially at 4.6 percent. There hasn’t been a major economic shock lately, which probably helps sentiment, but it’s also true that inflation isn’t much of a worry for consumers.

To be more specific, the highly visible, specifically painful price of gas has stabilized. On Sunday, the average for a gallon of regular was $3.617, while a week ago the average was $3.634, according to AAA. Compared with a year ago, however, the price is about the same, with a gallon averaging $3.598 this time last year).

Wall Street had a sharp down day on Friday, perhaps worried (a bit perversely) that the relatively good news lately will lead the Fed to slow down its stimulus of the economy. The Dow Jones Industrial Average was down 208.96 points, or 1.36 percent, while the S&P 500 lost 1.43 percent and the Nasdaq declined 1 percent.