Market Overview

Personal Income Rises Less than Expected, Real Disposable Income Declines

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.

Personal income increased $37.4 billion, or 0.3 percent; however lower than an expected increase of 0.5 percent.

Disposable personal income increased $14.1 billion, or 0.1 percent, in January, according to the Bureau of Economic Analysis.

Personal consumption expenditures increased $23.2 billion, or 0.2 percent. In December, personal income increased $60.2 billion, or 0.5 percent, DPI increased $48.3 billion, or 0.4 percent, and PCE increased $3.2 billion, or less than 0.1 percent, based on revised estimates.

Real disposable income decreased 0.1 percent in January, in contrast to an increase of 0.3 percent in December. Real PCE increased less than 0.1 percent, in contrast to a decrease of less than 0.1 percent.


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:
  • 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 income worse-than-expected.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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