Personal Income And Outlays

Definition
Personal income is the dollar value of income received from all sources by individuals. Personal outlays include consumer purchases of durable and nondurable goods, and services.

Importance
Income is the major determinant of spending-U.S. consumers spend roughly 95 cents of each new dollar. Consumer spending accounts directly for nearly two-thirds of overall economic activity and indirectly influences capital spending, inventory investment and imports.

Why do Investors Care?
The income and outlays data are another handy way to gauge the strength of the economy and where it is headed. Income gives households the power to spend and/or save. Spending greases the wheels of the economy and keeps it growing. Savings are often invested in the financial markets and can drive up the prices of stocks and bonds. Even if savings simply go into a bank account, part of those funds are typically used by the bank for lending and therefore contribute to economic activity. The only way savings fail to contribute is if they are deposited under the mattress, and not too many people do that anymore.

The consumption (outlays) part of this report is even more directly tied to the economy, which we know usually dictates how the markets perform. Consumer spending accounts for two-thirds of the economy, so if you know what consumers are up to, you’ll have a pretty good handle on where the economy is headed. Needless to say, that’s a big advantage for investors.

Interpretation
Increases (decreases) in income and consumption cause bond prices to fall (rally). As long as spending isn’t inflationary, the stock market benefits because greater spending spurs corporate profits. It is worth noting that financial market participants pay somewhat less attention to this report than to retail sales which are released earlier in the month.

Changes in personal income signal changes in consumer spending. Comparing these changes indicates whether households are “overspending” and will need to slow their pace of expenditures or “under spending” and have the potential to accelerate their rate of purchases.

Frequency
Monthly.

Source
Bureau of Economic Analysis, U.S. Department of Commerce.

Availability
Usually the last week of the month.

Coverage
Data are for the previous month. (Data for June are released in July.)

Revisions
Monthly, data for the prior three months are revised to incorporate more complete information. These revisions affect at least five years of data. The magnitude of the revisions is typically small.

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