 | Personal Income Increased 0.4% in September, Personal Consumption Rose 0.8% |
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| Posted Under: Data Watch • PIC |
Implications: A good report on the consumer today shows the plow horse economy continues to push through the mud and clay. Consumer spending grew a healthy 0.8% in September, the biggest monthly gain since February. "Real" (inflation-adjusted) personal consumption was up 0.4% and is 2.1% higher than a year ago. Respectable, but far from spectacular. Income gains were also solid in September, with disposable (after-tax) income up 0.4%, the highest monthly increase since March. Real disposable income is up 1.9% from a year ago, which is enough to keep pushing consumer spending higher. The lion's share of the income gains in September was due to worker compensation. Government transfers also added about a quarter of the gain, rising 0.5% in September, but this was after a decline in transfers in August. Government transfers are up 3.3% in the past year, while private-sector wages and salaries are up 4.6%. In other words, transfers are now holding down the growth rate of income. One factor that will help maintain spending growth in the year ahead is that households' financial obligations – recurring payments like mortgages, rent, car loans/leases, as well as other debt service – are now the smallest share of income since 1984. This allows consumers to stretch their income gains further. On the inflation front, overall consumption prices were up 0.4% and the core PCE, which excludes food and energy, was up 0.1% in September. Overall prices and core prices are both up 1.7% in the past year, versus the Federal Reserve's target of 2%. This is awfully close for a central bank running a very loose monetary policy. Expect higher inflation in the year ahead.
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