The Daily Economic News Report - Friday, May 31, 1996

T H E M O T L E Y F O O L ' S
The Daily Economic News Report
Friday, May 31, 1996

The Department of Commerce reported today that personal income increased in April by $29.9 billion, or 0.5 percent. But, that was April, and we all know what happens around the middle of April. During April, tax payments jumped by $58.8 billion so that Disposable Personal Income (DPI) (Personal Income minus Taxes) fell by $28.9 billion. This put a serious damper on Personal Consumption Expenditures (PCE) which had been averaging $30.2 billion during the preceding 5 months. PCE rose during April, but the rise was only $4.8 billion.

Not surprisingly, the personal savings rate -- the percentage of DPI that is saved -- fell from 4.4 percent to 3.7 percent from March to April. Despite the tax hit, the average saving rate for the first four months of 1996 was 4.4 percent. This compares with a rate of only 3.8 percent for all of 1994 and 4.5 percent for 1995. For the five months preceding April, the average savings rate was 4.7 percent -- concrete evidence of a tendency toward greater savings.

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In other news today, the University of Michigan released the final estimate for the value of its May consumer sentiment index. The index was revised slightly downward from 89.9 to 89.4. This dropped the Merlin composite index, obtained by averaging the U of M and Conference Board consumer sentiment indexes, to 95.3 -- 3.7 points below the 13-month high of 99 set in April.

Byline: Lafferty (MF Merlin)