Confidence Rises While Consumers Continue to Limit Spending

US morning indicator releases including personal income and consumer confidence came in better than expected while cautionary signs exist with low increases in spending despite the highest growth in disposable income in at least six months. Reacting to the news, US equities are off approximately half of one percent while the greenback, which had been weakening against the majors on more pressure from China regarding a global reserve currency, has started to pull off its lows of the session.

[B]Personal Income[/B] in May came in at 1.4% from 0.7% in the previous month while spending grew slightly in line with expectations for a rise of 0.3%. Income has now grown for two consecutive months following a string of downside since October. The release also saw disposable income rise 1.6%, the highest gain in at least six months. Meanwhile, the savings rate posted at a 15-year high with a sharp increase to 6.9% from 5.6%. Much of the growth seen in income, which at 1.4% came in significantly above expectations of a rise of 0.3%, was due to government measures including a $250 one-time payment to social security supplemented individuals. Reason cited in the report for improvement in disposable income included a decrease of $1.5 billion to government social insurance contributions along with an $11.1 billion decline in current taxes compared to the previous year. Transfer payments, a key portion of the overall figure posted a 7.8% rise on the effect of the stimulus package. Despite the positive figures, spending habits remained cautionary, rising just three-tenths of one percent. What can be deduced from this is that stimulus provided in the American Recovery and Reinvestment Act, which pitches $787 billion towards economic recovery, is not having a significant impact on spending habits. As the immediate benefits of the stimulus wind down and projects such as construction begin to take a more proactive role in recovery, economists will watch closely how consumers adjust.

[B]Consumer Confidence[/B], as measured the University of Michigan/Reuters, came in higher in the final June reading at 70.8 from a preliminary reading of 69.0. Economists polled by Bloomberg expected no change while the figure has risen considerably from a November low at 55.3. Also in the release, outlook was revised higher to 69.2 while still posting a slight dip from May. Meanwhile, inflation expectations remained steady at 3.1% but still significantly higher than the December low at 1.7%. Looking ahead, the pace of increase in confidence has cooled considered since a sharp rise in April, and investors will watch closely for the reading to maintain the highest levels since February 2008.