The economy is starting to thaw for workers and consumers.
For the seventh consecutive month, personal income is expected to rise, according to BBVA Compass Bank’s Economic Research Department.
However, the growth is being driven by government transfers and proprietors’ income rather than by wages.
And while employee compensation is no longer declining, the weak labor market will keep wage inflation subdued.
Because of increased consumer demand, personal consumption expenditures are also expected to grow, but household deleveraging will likely keep consumption growth subdued. As lenders maintain tighter credit standards and consumers continue to pay off debt, outstanding consumer credit is expected to shrink for the eighteenth consecutive month.
Non-revolving credit has begun to stabilize, and the continued decline in revolving credit shows that households are limiting the use of credit cards, BBVA economists said.
Economists said that household deleveraging could be one of the primary drivers behind the slow recovery of PCE during 2010.