Personal income rose 0.5% in October (month-on-month), beating the consensus forecast for 0.4%. Personal spending was up a robust 0.6%, also above expectations.
Prices were up 0.2% month-on-month and 2.0% year-on-year. Core prices (excluding food and energy) rose 0.1%, but decelerated on a year-on-year basis to 1.8% (from a downwardly revised 1.9% in September).
Removing price growth, real spending was up 0.4% in October (but from a downwardly revised 0.1% in September). Strength in spending was widespread with services leading the way (+0.5%), followed by durable goods (+0.4%), and non-durables (+0.3%).
The personal saving rate edged down to 6.2% (from an upwardly revised 6.3% in September).
Key Implications
Downward revisions to previous months soften the profile a bit, but October’s strong growth leaves consumer spending in good stead for another 3% or more outturn in the fourth quarter of the year. The fall in gasoline prices will leave more in the tank for consumers to spend this holiday season, even as volatility in financial markets tempers some of this cheer.
The inflation reading in today’s report is just as important as the spending and income data. Inflation has done a whole lot of nothing over the past several months and October was no exception. After much hurrah about the core rate hitting the Fed’s 2% target, it has since slipped off it and it looks to spend the next several months below it. Indeed, core price growth is averaging just 1.2% on a three-month-moving average basis. This should give the Federal Reserve pause. While it is likely not sufficient to stall a December rate hike, it certainly puts downside risks to the number of hikes in 2019.
