Katrina, Income, and Spending

Some of the first signs of Katrina’s effects on the US’s national economic statistics were contained in this morning’s release of the estimates of August personal income and spending. From the news release:

Personal income decreased $5.3 billion, or 0.1 percent, and disposable personal income (DPI) decreased $7.4 billion, or 0.1 percent, in August, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $47.2 billion, or 0.5 percent.

…The August estimate of personal income reflects the effects of Hurricane Katrina, which hit the Gulf Coast States of the United States at the end of August. Rental income of persons and proprietors’ income were reduced by about $100 billion (annual rate) primarily reflecting uninsured losses of residential and business property. “Other current transfer receipts from business (net)” was raised by about $70 billion (annual rate) to reflect insurance benefits paid to persons. Because other effects of the hurricane were embedded in BEA’s source data and could not be separately identified, BEA did not attempt to quantify their impact.

What is slightly worrying to me is not the fall income, but rather the sharp fall in spending. Spending fell by far more than income did… suggesting that perhaps the recent signs of sagging consumer confidence are translating into lower spending nationwide, not just among those directly affected by Katrina.

Kash