Personal Income and Spending

Impact: Medium
Data: Bureau of Economic analysis
Release time: 30 days after the month in survey
Frequency: Monthly
Source: Bureau of Economic Analysis
Revisions: Monthly
It is a comprehensive monthly summary of personal income and spending, produced by the Bureau of Economic Analysis (BEA). The report collects data about the individuals' income sources and his expenditure. The report also contains data for the widely watched inflation indicator known as the personal consumption expenditures (PCE).
Why is it important?
Though this monthly indicator is not as comprehensive as the quarterly GDP report, its timeliness is very important especially when economic trends are perceived to be nearing a turning point. This data can provide a monthly evaluation source as investors await the quarterly data. Monitoring of this report and a combination of other indicators can give hints on the direction and strength of the economy, as well as an insight into the Federal Reserve’s next move regarding short-term interest rates. The report also evaluates the ability and willingness of consumers to spend which is very important because consumer spending accounts for nearly two-thirds of the overall economic activity.
How is it computed?
The computation of this data takes two separate approaches that must combine to get the overall result. This is a compilation of the personal income then calculation of the spending. These two categories are further subdivided in specific groupings. To start with, the personal income includes wages and salaries, supplements to wages and salaries, proprietors’ income, social benefits and net insurance settlements. On the other hand personal spending takes into account all moneys spent on personal consumption expenditures such as durable and non-durable goods and services, interest payments and transfer payments such as fines to the federal government, donations, fees and other payments that may be made to other governments out of the U.S. Both the incomes and spending are balanced to get the true situation of the population’s income and spending report.
How does it affect the forex trade?
Monetary policy and where it is perceived to be headed play a major role with the direction of investment decisions. If the trend in the report is rising in a way that hints income and spending are overheating, bond prices could fall on the outlook for greater overall economic demand, potentially higher inflation and an increased chance that the Federal Reserve will hike interest rates. The Federal Reserve Bank’s interest rates are a major factor in the shaping of the economic landscape and the rates will indirectly affect the forex rates as the country introduces stimulus to reactivate the economic performance. A rise in income and spending readings can depict economic strength while declining readings typically reflect economic weakness. All these situations are bound to impact directly on the forex rates.
How does it affect the stock market?
There is a scenario where stock prices could experience a temporary lift if the prevailing economic trend is subdued. Incase the income and expenditure trends hint at an economic rebound from a weak economic period, a boost in stock prices may be eminent even with an expected rise in bond yields. That is because the market's expectation of potentially higher profit growth from greater economic demand can be the more influential factor in driving stock prices higher. Thus, it can be the more-dominant factor driving stock prices for a period, overshadowing even the negative impact of rising bond yields. At times, monthly income may not necessarily change the spending pattern simply because income earners may opt to suspend their spending for different reasons ranging from anticipated drop in commodity prices to the fear that they may soon. If however the imbalance persists it might as well imply that money is being earned locally but the income owners are holding it to invest in other economies thus if they don’t seem to trust the future of the local economy. This may lead to a slow down at the stock markets.
Spending breaks are more likely to occur when there is an impending change in government such as during election time. People are likely to hold spending especially if the people are optimistic of a new government that they believe may make changes on the economic policies that are in turn likely to affect the economic landscape in a big way. Although spending breaks may not mean the economy is declining, it may cause temporary price drops at the stock market before investors start spending freely again.