October Personal Income and Spending

Updated 30-Nov-08 19:44 ET

Highlights

Personal income growth remains modest, but it is still growing.
Personal consumption expenditures are being reduced at a rate not warranted by income trends. This reflects a consumer that has gone into retrenchment mode. This is partly a result of the decline in the stock market, but also driven by the dramatic headlines about global economic weakness and the over-the-top talk about a possible depression. The economic problems are thus partly self-fulfilling.
Regardless, the decline in real personal consumption expenditures for October establishes a very low base for the fourth quarter and sets the stage for a very weak fourth quarter GDP number.
The good news is that the PCE deflator was down 0.6% in October and the core rate was flat. Lower energy prices produced the overall decline, while weak economic conditions are keeping overall price pressures in check.

Real (inflation-adjusted) personal income expenditures (PEC) account for about 70% of GDP. These data therefore warrant significant attention. The data come out after the monthly retail sales numbers, however, and the market therefore does not typically react much to the data. The trend in real PCE has been down since June. The declines have accelerated in recent months. This is a significant problem for the economy, and will remain so until payroll declines moderate. The PCE deflator is the Fed's favorite inflation measure as it is a very broad measurement and is adjusted according to demand. It was rising with energy prices earlier this year, but the recent trends are extremely favorable and likely to remain so well into 2009 due to weak overall demand.

Category	Oct	Sep	Aug	Jul	Jun
Personal Income
Total Income	0.3%	0.1	0.3	-0.8	0.1
Wage and Salary	0.1%	-0.1	0.3	0.2	0.2
Disposable Income	0.4%	0.1	-1.1	-1.0	-1.8
Savings Rate	2.4%	1.0	0.6	1.6	2.5
Personal Consumption
Total (Nominal)	-1.0%	-0.3	-0.1	-0.1	0.5
Total (Real, Chain $)	-0.5%	-0.4	-0.1	-0.6	-0.2
Core PCE Deflator
Month/Month	0.0%	0.2	0.2	0.3	0.3
Year/Year	2.0%	2.2	2.2	2.1	2.0