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Farm Losses, Sequester Cut April Income, Spending Falls

Restrained by drops in farm income and sequester-driven cuts in government programs, personal income slipped $5.6 billion in April, while personal consumption spending dropped $20.5 billion, the ""Bureau of Economic Analysis"":http://bea.gov/newsreleases/national/pi/2013/pdf/pi0413.pdf reported Friday. Though the income drop was less than one percent (0.04 percent), and it was less than the 0.1 percent increase forecast by economists who also expected April spending to be flat compared to March.


Data for March was revised to show income grew $36.2 billion instead of the originally reported $30.9 billion, and spending in March was up $14.2 billion instead of the originally reported $21.0 billion.

The drop in income in April was due primarily to a fall-off in farm income and government transfer payments such as Social Security, Medicare, and unemployment insurance.

Farm income fell $11.3 billion or 13.6 percent in April, the first month-over-month decline in farm income since December when it fell $1.0 billion. In April 2012, farm income rose $0.5 billion.

Transfer payments dropped $13.7 billion or 0.6 percent in April with a $9.6 billion falloff in Social Security payments. Social Security payments can fluctuate in months which begin on a weekend with payments accelerated to the last business day of the previous month. April 1 though was on a Monday.


Unemployment insurance, Medicare and Medicaid--all affected by the sequester cuts which took effect at the end of March--fell a combined $9.1 billion. Medicare benefits, according to BEA, include hospital and supplementary medical insurance benefits that are distributed from the federal hospital insurance trust fund and the supplementary medical insurance trust fund.

Compensation--including wages and other salary ""supplements""--increased $3.9 billion, not enough to offset the declines.

Disposable personal income--essentially after-tax income--fell $16.1 billion for the month but with consumers reducing spending by $20.5 billion, personal savings increased to $306.9 billion or 2.5 percent of disposable income, the same savings rate as March.

The drop in both income and spending in the first month of the second quarter threatens to slow GDP growth, ""reported"":http://dsnews.comarticles/1q-gdp-growth-dips-corporate-profits-fall-2013-05-30 as 2.4 percent for the first quarter. Personal consumption spending was 70.9 percent of first quarter GDP.

The April drop in personal spending reversed a $14.2 billion increase in March. But even that increase was troublesome since it came entirely in the service sector with spending on goods falling $28 billion. Spending on durable goods increased slightly--$4.7 billion--n April as spending on non-durable goods fell $29.9 billion. Spending on services rose a scant $4.5 billion in April. The shift in spending--in February spending on goods rose faster than spending on services--could show up in wholesale and retail trade employment.

Spending on durable goods is also a confidence indicator as those purchases--appliances and the like--are often made with borrowed funds.

With interest rates remaining low, personal interest payments on non-real estate related debt fell $1.1 billion in April, the first decline since December.

_Hear Mark Lieberman next Friday on P.O.T.U.S. radio, Sirius-XM 124, at 8:45 am and again at 1 pm eastern time._

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.

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