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Rising Wages a Positive Sign Heading Into Holidays

The preliminary estimate for personal income for the third quarter shows a 3.9 percent increase, the same pace as in the second quarter, according to new data released by the Bureau of Economic Analysis this morning. These are solid though not spectacular gains.

Let’s look inside the details of the report on personal income. Wages and salaries — what workers see in their paychecks —  rose by 4.7 percent at an annual rate, also matching the pace of the second quarter. That pace is a good sign for consumers as the always-important holiday spending season approaches.

On a year-over-year basis, wages and salaries are rising at 3.8 percent pace, towards the middle of the range since the end of the last recession, but somewhat below the gains during previous economic expansions. However, inflation is also lower now than in previous expansions, leaving real wages and salaries growth looking more impressive.

As a proxy for wages and salaries, we track the Aggregate Payroll Index from the monthly employment report. This indicator is up at a 3.9 percent pace over the past 12 months through September.  We will get data for October in the employment report due out this Friday.

With the unemployment rate at 5 percent for September (October data will come out this Friday as well) and hourly earnings growth accelerating, consumers are likely in a good position for holiday spending this year.

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