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How Declining Wages and Salaries Kept Personal Income and Outlays Lower In September

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Personal income in September

In the US, wages and salaries represent over one-half of personal income. Despite declining wages and salaries, personal income increased by 0.1%, or $18.6 billion, in September 2015. Decreases in industrial demand have kept wages low.

Meanwhile, the SPDR Dow Jones Industrial Average ETF Trust (DIA) and the Industrial Select Sector SPDR Fund (XLI) declined 0.50% and 0.13%, respectively, as of October 30.

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Private sector wages and salaries in September

In September, a $3.7 billion decrease in wages and salaries compared to the $36.0 billion increase in August kept the reading below the consensus estimate of 0.2%. But private sector wages and salaries recorded an even more substantial decline of $7.0 billion, in contrast to its $32.2 billion increase in August.

While government wages and salaries continued to rise moderately at $3.3 billion in September, non-farm proprietor incomes saw a jump of $3.1 billion in September, whereas farm proprietor income increased by only $2.6 billion—the same increase as in August.

Personal outlays

Consumer spending accounts for about 70% of GDP (gross domestic product) in the US. Personal spending rose by 0.1%, or $15.6 billion, in September compared to the consensus estimate of 0.2%. The decline in September was mainly led by decreasing non-durable purchases of 1.2%. However, both durable goods and services saw a gain of 0.8% and 0.4% in September.

The personal savings rate as a percentage of disposable personal income rose marginally by 4.7 % in September, compared to 4.6 % in July. The Consumer Staples Select Sector SPDR ETF (XLP) declined by 1.1% as of October 30, with declining consumer sentiment. Consumer stocks such as Kellogg Company (K), Estée Lauder Companies (EL), Clorox Company (CLX), and Colgate-Palmolive Company (CL) fell by 0.66%, 2.2%, 0.64%, and 4.2%, respectively, as of October 30.

China and the US

With global volatility, manufacturers are cautious when it comes to new hiring. The slowdown in China and other emerging economies have kept the demand low, and Americans are getting cautious about their spending habits as incomes decline.

Meanwhile, if demand conditions do not improve, manufacturers may be forced to lay off or shut down factories moving forward, which could worsen the household sentiment toward the economy even further, slowing down the pace of economic growth as we near the end of 2015.

So now that the latest Chicago PMI (purchasing managers’ index) is out, let’s take a look how manufacturing trended in October in the next part of this series.

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