Economy Watch: Personal Income, Spending Inch Up in August

By Dees Stribling, Contributing Editor

Personal income increased $47.3 billion, or 0.3 percent in August, according to the Bureau of Economic Analysis on Monday. During the same month, personal consumption expenditures (PCE, or governmentese for people spending money) increased $57.5 billion, or 0.5 percent. Purchases of motor vehicles and parts accounted for about half of the August increase.

Real PCE—PCE adjusted to remove price changes—also increased 0.5 percent in August, compared to a decrease of 0.1 percent in July. Prices didn’t move much during the month, with the BEA’s price index for PCE decreasing less than 0.1 percent in August, as opposed to an increase of 0.1 percent in July. The PCE price index, excluding food and energy, increased 0.1 percent in August, the same increase as in July.

Compared with a year ago, the August 2014 price index for PCE increased 1.5 percent, yet another indication that inflation is a ghost of its former self. That’s also true for the so-called core rate of inflation. The August PCE price index, minus food and energy, increased 1.5 percent from August a year ago.

NAR Pending Home Sales Index drops

The National Association of Realtors reported on Monday that its Pending Home Sales Index, a forward-looking indicator based on contract signings, dropped to 104.7 in August from 105.8 in July, and is below August 2013 (107.1). Despite the decline, the index is above 100—considered an average level of contract activity—for the fourth consecutive month and is at the second-highest level since last August.

“Fewer distressed homes at bargain prices and the acknowledgement we’re entering a rising interest rate environment likely caused hesitation among investors last month,” NAR chief economist Lawrence Yun says. “With investors pulling back, the market is shifting more towards traditional and first-time buyers who rely on mortgages to purchase a home.”

According to NAR’s Profile of Home Buyers and Sellers, 81 percent of first-time buyers in 2013 who financed their purchase obtained a conventional or FHA loan. Overall, first-time homebuyers have been less prevalent during the housing recovery, representing less than a third of all buyers each month for the past two years.

Wall Street edged down on Monday, with the Dow Jones Industrial Average off 41.93 points, or 0.25 percent, and the S&P down by the same percentage. The Nasdaq declined 0.14 percent.