Implications: Real (inflation-adjusted) consumer spending grew for the fifth month in a row in September, rising 0.3% including upward revisions to prior months. Higher spending is a result of three factors. First, households are not paying down their debts as rapidly as they did during the recession. Second, earnings are rising in the private sector. And third, due to low interest rates and prior debt reductions, households no longer need to use a large share of their income to service their remaining debts or meet other monthly obligations (rent, car leases,...etc.). Although personal income declined in September this was largely due to a drop in unemployment benefits, after an artificial spike in benefits in August. Private-sector wages & salaries increased only 0.1% in September, but that follows two straight strong 0.5% gains in July and August. (This is exactly the kind of normal variation in data we saw in Q2.) In the past three months, private wages & salaries are up at a 4.2% annual rate, which is 2.2% faster than inflation. On the inflation front, consumption prices are up only 1.4% versus a year ago, 1.2% if we exclude food and energy. The latter measure – "core" inflation – is the excuse the Federal Reserve is using to consider embarking on another round of quantitative easing later this week.
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