Personal Income Rises Less than Expected

Allie Wickman, Benzinga Staff Writer

June 01, 2012 9:04 AM

Tickers: CL, JCP, PG, TGT, WHR, XLY

Personal Income calculates the pre-tax income households collect from employment, investments, and other payments. The impact on equity markets is subdued. However, the data is still functional in gauging the ability of consumers to spend residual income, as increasing

Personal Income allows for buoyant consumers spending. Also, as consumers make up two-thirds of US GDP, increasing consumer incomes theoretically should drive strong growth in the US economy.

April Personal Income 0.2% vs 0.3% Est; Prior 0.4%
April Personal Spending 0.3% vs 0.3% Est; Prior 0.3% Revised to 0.2%

Personal income increased $31.7 billion, or 0.2 percent, and disposable personal income increased $22.0 billion, or 0.2 percent, in April, according to the Bureau of Economic Analysis.

Personal consumption expenditures (PCE) increased $31.8 billion, or 0.3 percent. In March, personal income increased $52.2 billion, or 0.4 percent, DPI increased $45.9 billion, or 0.4 percent, and PCE increased $25.4 billion, or 0.2 percent, based on revised estimates.

Private wage and salary disbursements increased $12.9 billion in April, compared with an increase of $17.6 billion in March. Goods-producing industries' payrolls increased $7.2 billion, compared with an increase of $0.2 billion; manufacturing payrolls increased $4.3 billion, in contrast to a decrease of $0.2 billion.

Services-producing industries' payrolls increased $5.7 billion, compared with an increase of $17.4 billion. Government wage and salary disbursements were unchanged in April; government wages and salaries increased $0.8 billion in March.

ACTION ITEMS:

Bullish:
Traders who believe that Personal Income is a leading indicator for the US economy, you might want to consider the following trades:

Long general retail companies like JC Pennny (NYSE: JCP) because as more people have increasing incomes, the more likely people will spend it. In theory, the economy will likely grow stronger, as consumer spending is two-thirds of US GDP.

Also, long Consumer Discretionary companies like Target (NYSE: TGT) or the Consumer Discretionary ETF (NYSE: XLY)

Bearish:
Traders who believe that Personal Income is not a leading indicator for the US economy, you might want to consider the following trades:

If the data is showing mixed signals, long Consumer Staple companies like Procter & Gamble (NYSE: PG) and Colgate (NYSE: CL) because even if people have less money, they still need to buy staple products like shampoo and toothpaste.

Also, short big-ticket appliance makers like Whirlpool (NYSE: WHR) if Personal Income worse-than-expected.

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