Wallet Health Improves
Positive personal income data is exceptionally important at this stage of the recovery, says Morningstar's Bob Johnson.
As I indicated last week, Wednesday's personal income report for November was by far the most important piece of data this week. The report analyzes what consumers bring in, what they spend, and finally what they save.
Overall personal income growth came in at 0.4% representing the best results since May. Given that consumers represent about 70% of GDP, the income data is exceptionally important at this stage of the recovery. The total income number includes wages, rents, dividends, and small business income, amongst other things. Ultimately it takes better incomes to enable consumers to spend more, so it is nice to see this piece of the puzzle drop into place.
The small business (identified as proprietors' income) component was up 1.2% for November, following a 1.4% gain in October. Small businesses had previously shown three straight months of decline. Given that small businesses are usually the largest source of employment growth coming out of recession, the recently improving numbers are particularly gratifying. Wage growth also exceeded 0.3%, its best performance since way back in March. Better wages (driven mostly by more hours worked, not more pay per hour) combined with a better stock market performance should boost both consumer confidence and holiday spending.