US personal income growth slows in September, as spending holds steady

Personal income rose 0.1% m/m in September, a touch below expectations (0.2%), as wage and salary income was unchanged on the month. Economists had looked for a tepid 0.1% rise in wage and salary income, given the decline in the average workweek, and the data came in below our expectations.

"We do not expect the softening in household income to continue, however, and look for a better pace of income growth in October, in line with the expected bounce back in payroll growth. This temporary softness was partially offset by a solid 0.4% m/m rise in proprietors' income in September. Against the 0.1% m/m gain in nominal personal spending, the slowdown in personal income led the household savings rise to rise one-tenth, to 4.8%",says Barclays.

This morning's data on personal spending were already incorporated in the quarterly profile of consumption in yesterday's advance estimate of Q3 GDP. Personal spending was up 0.1% on the month in nominal terms and 0.2% after adjusting for price changes. Real consumption of durable goods was up 0.6% on the month (previous: 0.6%), and spending on services rose 0.3% m/m (previous: 0.4%). Nondurable goods consumption declined 0.3% m/m, a reflection of the softness already seen in core September retail sales.

The prices side of this morning's report was in line with expectations with the headline PCE price index at -0.1% m/m (0.2% y/y) and core prices up a modest 0.1% m/m. The year-on-year rate of core PCE inflation was unchanged at 1.3%, as the sharp drag from goods prices (-3.2% y/y) was offset by steady services inflation (1.8% y/y). This morning's data led the gap between the annual rate of core PCE and core CPI inflation to widen to 58bp (previous: 54bp), the largest since 2009.

"As we have noted, robust shelter inflation has led this gap to widen over the past year. Reductions in Medicare and Medicaid rates that were passed as part of the Bipartisan Budget Act of 2015 will likely widen the divergence between CPI and PCE medical care services inflation further. As a result, we look for the CPI/PCE gap to remain wider, for longer, than we had previously expected", added Barclays.