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Slow Wage Growth Holds Down March Personal Income

Restrained by slow wage growth, personal income rose a disappointing $30.9 billion (0.2 percent) in March--half of what economists expected--as spending rose $21.0 billion or 0.2 percent, the ""Bureau of Economic Analysis"":http://bea.gov/newsreleases/national/pi/2013/pdf/pi0313.pdf reported Monday.

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Economists had expected income to improve 0.4 percent in February and spending to increase 0.1 percent.

The Bureau of Labor Statistics (BLS) reported average weekly earnings rose 0.3 percent in March with an increase of 88,000 payroll jobs, boosting aggregate weekly earnings, which represent about 52 percent of personal income.

The personal income number is a key driver of the economy fueling consumption which is, according to Friday's Gross Domestic Product report, about 71 percent of the total economy. Wages grew just 0.2 percent in March, down from 0.7 percent in February. In 2012, wages grew an average of 0.3 percent per month.

Even though total personal income rose faster than spending, savings dropped $1.8 billion after accounting for taxes, reducing disposable income and personal interest (no-mortgage), which rose $1.6 billion during the month despite continued low interest rates.

The personal savings rate--measured as a percentage of disposable income--remained at February's rate of 2.7 percent.

Personal income had improved $15.2 billion in February, largely on the strength of an $80 billion increase in dividend payments. Dividend payments in March increased by $4.5 billion over February.

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Some of the February increase in dividends may have been timing adjustments. Dividend income soared in December as companies paid out special dividends before the end of the year, uncertain as to the effects of ""fiscal cliff"" negotiations that might have affected dividend tax rates as of January 1. Dividends in December jumped $281.3 billion in December but then boomeranged to drop $375.2 billion in January. The February increase would have been a return to more normal payout rates.

Government transfer payments--largely Social Security, Medicare and unemployment insurance--increased a net $3.7 billion in March, down from February's $11.3 billion monthly increase. Unemployment insurance payments dropped $4.2 billion in March, a reflection of an improving labor market and the expiration of benefits. Those payments will fall again in April as sequester cuts reduce unemployment benefit programs further.

The increase in personal consumption spending came entirely in the service sector, while spending for both durable and non-durable goods fell. That purchase of goods declined suggests further struggles for the economy as retailers will have no need to stock shelves, reducing factory orders and potentially both retail and wholesale trade employment. Retail employment declined 24,000 in March, according to the BLS--about two-thirds of the jobs added in January and February combined.

The $29.8 billion drop in durable goods spending is a confidence indicator, as durable goods spending is typically financed by borrowing.

Even with continued low interest rates, personal interest payments--for non-mortgage debt--increased to $175.1 billion in March from $172.6 in February.

Inflation (as measured by the personal consumption expenditures price index) fell 0.1percent in March after rising 0.4 in February. Excluding volatile food and energy, the core index was unchanged in March compared with a 0.1 bump in February. Year-over-year, overall inflation was 1.0 percent in March, down from 1.3 percent in February. The core inflation rate--excluding food and energy--was 1.1 percent in March, down from 1.3 percent in February.

_Hear Mark Lieberman Friday on P.O.T.U.S. radio, Sirius-XM 124, at 8:45 a.m. Eastern time._

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.
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