September Personal Income and Spending
Updated 19-Nov-09 19:27 ET
Highlights
- As the consensus expected, personal income posted no growth in September after increasing 0.1% in August.
- Surprisingly, real disposable income tumbled for the fourth consecutive month. The drop in prices has not had the expected effect of increasing real income data.
- Personal savings increased a 0.5 percentage points to 3.3%.
- Real personal consumption expenditures fell 0.6% after posting a strong 1.0% increase in August.
- Headline PCE prices fell 0.5% year-over-year as good prices fell 3.6% and service prices rose 1.0%.
- Energy prices continued to increase in September as prices grew 0.8% month-over-month after a shocking 5.1% increase in August. Energy prices are still very negative (-22.6%) when viewed over the last year.
- Core PCE prices increased only 0.1% month-over-month and 1.3% year-over-year.
Key Factors
None of the data in the personal income and spending release is new as the September data was included in the quarterly averages found in the Q3 GDP report.
- That said, the income data looks much weaker when transfer receipts (Social Security, disability, and unemployment benefits) are stripped from the total receipts. This figure better represents labor income and, in real terms, fell 0.3% in September after declining at the same rate as August.
- The decline in labor income does not bode well for future spending and a continued high unemployment rate will put further downward pressures on wages.
- The decline in consumption expenditures was due to the severe drop off in motor vehicle spending after the Cash for Clunkers stimulus plan ran its course in August.
- Excluding motor vehicle spending, personal consumption would have increased a healthy 0.3%.
- The Fed tries to maintain a target core PCE inflation rate between 1.5% and 2.0%. At 1.3%, the Fed will not be worried about increasing the fed funds rate anytime soon.
Big Picture
- While off their lows, sustainability in the personal income and consumption sector look weak. High unemployment will put heavy downward pressures on wage growth. Since consumption has a direct relationship with the amount of income a consumer has to spend, lower incomes will cause consumption growth to be weak. Government stimulus in the form of tax credits has done a nice job of maintaining minimal growth and if they expire we could see another leg down in consumption spending.
| Category |
SEP |
AUG |
JUL |
JUN |
MAY |
| Personal Income |
|
|
|
|
|
| Total Income |
0.0% |
0.1% |
0.1% |
-1.1% |
1.3% |
| Wage and Salary |
-0.2% |
0.2% |
0.1% |
-0.3% |
-0.1% |
| Disposable Income |
0.0% |
0.1% |
-0.1% |
-1.1% |
1.6% |
| Savings Rate |
3.3% |
2.8% |
4.0% |
4.2% |
5.9% |
| Personal Consumption |
|
|
|
|
|
| Total (Nominal) |
-0.5% |
1.4% |
0.2% |
0.7% |
0.1% |
| Total (Real, Chain $) |
-0.6% |
1.0% |
0.2% |
0.2% |
0.0% |
| Core PCE Deflator |
|
|
|
|
|
| Month/Month |
0.1% |
0.1% |
0.1% |
0.1% |
0.1% |
| Year/Year |
1.3% |
1.3% |
1.4% |
1.5% |
1.6% |
