RTTNews - Personal income increased by much more than expected in the month of May, according to a report released by the Commerce Department on Friday, although the jump was due in large part to increased government social benefit payments.
The report showed that personal income jumped 1.4 percent in May following an upwardly revised 0.7 percent increase in April. Economists had expected income to rise 0.3 percent compared to the 0.5 percent growth originally reported for the previous month.
A reduction in taxes and increased government benefit payments associated with the economic stimulus bill contributed to the bigger than expected increase in personal income.
Excluding the effects of the stimulus bill, disposable personal income, or personal income less personal current taxes, increased by a much more modest 0.2 percent in May.
The Commerce Department also said that personal spending rose 0.3 percent in May after coming in unchanged in the previous month. The moderate increase in spending came in line with economist estimates.
With personal income increasing by much more than spending, personal saving as a percentage of disposable personal income was 6.9 percent in May compared with 5.6 percent in April. The increase lifted the savings rate to its highest level since December 1993.
However, Peter Boockvar, equity strategist at Miller Tabak, noted, Analyzing the savings rate has become more difficult in light of the one time special government transfer payments.
Boockvar pointed out that the real savings rate likely would have fell a touch excluding the effects of the stimulus payments.
The Commerce Department also said that its closely watched reading on core consumer prices showed a slowdown in the pace of price growth.
Core prices, which exclude food and energy prices, rose at an annual rate of 1.8 percent in May compared to the 1.9 percent growth seen in April.
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