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US: Personal income jumps on tax rebates

Mon, Jun 30 2008, 08:03 GMT
by KBC Market Research Desk

KBC Bank

In May, Personal spending came out slightly above the consensus at 0.8% M/M following an upwardly revised 0.4% M/M in April, earlier reported as 0.3% M/M. The PCE Core deflator was slightly below expectations at 0.1% M/M and 2.1% Y/Y. More surprising were the Personal Income figures, rising 1.9% M/M against 0.3% M/M in April and the consensus of 0.4% M/M. But there is strong evidence that the higherthan- expected personal income figures are due to the tax rebate checks that were sent out and thus won’t be repeated in the next months when it will be payback time. Another remarkable figure was the jump in the savings rate to 5.0%, reflecting the larger increase in spending compared to incomes. This indicates that not all the tax rebate checks were already spent, which is quite normal.

EMU: Economic sentiment deteriorates.

The EU economic confidence index extended its fall to 94.9 in June from 97.6 in May, reaching its lowest level since May 2005. The details show that there was only an improvement in the services confidence, increasing from 8 to 9 while a slight decrease (7) was expected. Consumer confidence fell from -15 in May to -17 in June and industrial confidence dropped from -2 to -5, for both figures, a milder decline was expected. The EU business climate indicator fell from an upwardly revised 0.58 to 0.14, which is clearly below the expected 0.40. These figures are in line with the PMI surveys released in the previous week and raise fears that the euro zone economy is heading for a serious slowdown, maybe even recession. The June euro zone retail PMI painted a similar downbeat picture as the index plunged from 53.1 to 44.0, but the survey is relatively new, volatile and not so reliable.

In Germany, the EU harmonised CPI rose by 3.4% Y/Y in June against 3.1% Y/Y in May, which is broadly in line with the consensus. Also in Spain, the consumer price index came out higher, at 5.1% Y/Y after 4.7% in May and slightly above the consensus of 5.0% Y/Y. Last week’s inflation data out of Germany, Spain and Belgium now raise fears that the euro zone headline inflation rate will come out above the consensus today and could be as high as 4.0% Y/Y.

Published on  Mon, Jun 30 2008, 08:05 GMT