Personal income increased by 0.4% (m/m) in October, on par with consensus. Personal income was also revised up for the previous month, with growth in September now reported as 0.2% m/m (prev. 0.1%). Growth in disposable personal income (accounting for taxes) grew in line with the personal income metrics.
Personal spending advanced 0.1% (m/m) in October, well shy of the 0.3% expected by economists. To make matters worse, revisions cut growth in September to just 0.1% m/m (prev. 0.2%). Real spending also advanced by just 0.1% as relatively healthy goods expenditures (+0.2% m/m) were offset by a near stalling in real services spending.
The personal consumption expenditure (PCE) price deflator increased by 0.1% (m/m) last month, with the year-over-year measure unchanged from the previous month at 0.2%. Goods continued to decline in price, at 3.1% y/y while prices of service
The core PCE deflator (excluding food and energy prices) was flat on the month, but was upwardly revised to 0.2% m/m for the previous month (prev. 0.1%). The year-over-year measure of the core PCE deflator remained at 1.3% for the tenth consecutive month. The savings rate rose 0.3 percentage points to 5.6%.
The report was definitely a mixed bag. On the bright side, income growth picked up on strong wage & salary gains which were up 0.6% m/m - their fastest pace in five months. This suggests that the continuing improvement in the labor market which has recently manifested in a pick-up in average hourly earnings is definitely ending up in consumers' pockets.
"Consumers appear cautious about spending that windfall, with real consumption decelerating to its slowest pace since snow-impacted February. As it stands now the October spending figures do not inspire confidence for an overly strong Q4 PCE print, with GDP tracking suggesting sub-2% growth. Still, given the strong gains in income and low gasoline prices, we remain hopeful the consumer will begin to spend this windfall during the very important holiday shopping season", says TD Economics.
