Personal Income and Disposable Income WHAT IT IS - Personal income A persons income, before taxes.

. Not as good of an indicator as disposable income, but is easier to calculate. o Also does not include individuals contributions to government social insurance programs like Social Security - Disposable income A persons income after he/she pays taxes. Available for spending or saving. Viewed as an important indicator of the present and future health of the economy. - Revises past numbers - Seasonally adjusted - Real disposable income Chained (2005) dollars, so adjusted for taxes and inflation. Other numbers are in current dollars. SOURCES AND DATA COLLECTION - Prepared by the Bureau of Economic Analysis, part of the U.S. Chamber of Commerce - Monthly estimates of personal income and personal consumption expenditures - Personal income o Estimated on a state and local basis first o Based primarily on administrative records data (for example, data collected by the Bureau of Labor Statistics), and some survey and census data is used Example: Personal farm income calculated from numbers from the USDA o Tax codes - Personal consumption expenditures (PCE) o Collected partially from the Monthly Retail Trade and Food Services Survey (which is collected by the U.S. Census Bureau) o Includes: Sales of retail stores Unit auto and truck sales Consumer shares of auto and truck sales Gasoline Utilities - Revisions are based on Bureau of Labor Statistics data about employment, hours, and earnings

Personal Income and Disposable Income THE NUMBERS IN JANUARY: - Personal income decreased $505.5 billion, or 3.6% - Disposable personal income (DPI) decreased $491.4 billion, or 4.0% - Personal consumption expenditures (PCE) increased $18.2 billion, or 0.2% Real disposable income decreased 4.0% Real personal consumption expenditures increased 0.1% Personal saving was 2.4% of disposable personal income (DPI)

IN DECEMBER: - Personal income increased $353.4 billion, or 2.6% - Disposable personal income (DPI) increased $325.7 billion, or 2.7% - Personal consumption expenditures (PCE) increased $14.8 billion, or 0.1%, based on revised estimates Real disposable income increased 2.7% Real personal consumption expenditures increased 0.1% Personal saving was 6.4% of disposable personal income (DPI)

ADJUSTED FOR SPECIAL FACTORS: - Disposable personal income (DPI) increased $37.6 billion, or 0.3% in Jan - Disposable personal income (DPI) increased $38.6 billion, or 0.3% in Dec TRENDS IN 2012: - Personal income increased 3.5% - Disposable personal income (DPI) increased 3.3% - Personal consumption expenditures (PCE) increased 3.7% Real disposable income increased 1.5% Real personal consumption expenditures increased 1.9%

IN 2011: - Personal income increased 5.1% - Disposable personal income (DPI) increased 3.8% - Personal consumption expenditures (PCE) increased 5.0% Real disposable income increased 1.3% Real personal consumption expenditures increased 2.5%

OVERALL: Biggest decline in 20 years

Personal Income and Disposable Income FUTURE PREDICTIONS - Rising gas prices could cut into consumer spending in February o Rose in February but are expected to fall in coming weeks - Expiration of payroll tax cut expected to hit harder in February - Consumer spending in first three months of this year is expected to slow down sharply from the 4th quarters 2.1% annual increase FACTORS - Decrease in January after increase in December reflects accelerated bonus payments and dividend distributions in Dec in anticipation of income tax rate changes o Fiscal cliff deal raised dividend tax rates for high-income households from 15% to 20% - Decrease in disposable personal income reflects expiration of a payroll tax holiday, boosting employee contributions for government social insurance o Workers have to pay 2% more in taxes this year, as it went back from 4.2% to 6.2% - Strong auto sales, rebounding house market helps with increase in consumer spending Excluding special factors: o Disposable personal income (DPI) increased $37.6 billion, or 0.3% in Jan o Disposable personal income (DPI) increased $38.6 billion, or 0.3% in Dec

WHAT IT MEANS - Consumer spending went up 0.2% o Consumer spending is closely watched, since it accounts for a large part of the economy (about 2/3, 70%) o Some economists have said that the increase is weak o Payroll tax cut has had a hit on spending o But still an increase in spending Rise in services Decreased spending on goods - Disposable personal income (DPI) actually increased 0.3% - Savings rate (2.4%) lowest since November 2007 o Up at 6.4% in December