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HOME > ECONOGUIDE > PERS. INCOME/CONS.
Thursday, September 2

Personal income and consumption are released at the end of the month following the relevant month. The data are more comprehensive than the employment report, or retail sales. Personal income measures total pre-tax earnings for individuals, non-profit organizations, and private trust funds, not just hourly earnings, although wages and salaries make up 60% of the total. Consumption measures spending including services.

Included in the report is the personal consumption expenditure (PCE) deflator. This is another measure of inflation that is considered by some to be superior to CPI as it better reflects what people are actually buying. Moreover, CPI is widely considered to be biased upward.

This report provides useful information for real GDP. Since consumption is of vast importance to GDP, once two months of personal income and spending are available, a reasonably good estimate of that quarter’s real GDP can be derived. Retail sales and employment, which are released earlier are helpful in estimating personal income and consumption.

The underlying trend is important as rising income and spending indicate solid GDP growth, which could indicate the need for monetary policy action to slow the economy, if inflation risks are high.

The trend of income growth compared to the trend of spending provides information on the pattern of consumption. If income growth is modest while spending growth is robust, this could indicate that people are borrowing or running down savings, which could lead to financial difficulty if the economy suddenly slowed or interest rates increased.
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