Personal income rose 0.4% in October, a hair above the consensus expectation for 0.3%. Controlling for inflation and removing taxes, real disposable personal income rose 0.3% on the month.
Personal spending increased by 0.3% in nominal terms, in line with expectations. In real terms, spending was up a soft 0.1%, following September’s robust, but downwardly revised, 0.5% increase.
By component, real spending on non-durable goods led the way, up 0.5%, but durable goods pulled back 0.1% and services spending was flat on the month.
Prices rose 0.1% month-on-month in October and inflation pulled back to 1.6% year-on-year from 1.7% in September. Core prices rose 0.2% (m/m) in October, but core inflation was unchanged at an upwardly revised 1.4%.
The personal saving rate edged up to 3.2% from 3.0% in September.
Key Implications
Some deceleration in spending growth was expected as spending normalized following the volatility created by hurricanes. Still, the downward revision to September’s data in combination with softer-than anticipated durable goods spending in October suggests some downside risk to expectations for fourth quarter consumer spending growth and therefore broader economic growth. Real GDP growth is tracking closer to the 2% than 3% mark at this stage.
With yesterday’s upward revision to third quarter GDP, there is little reason to fret a modest deceleration in economic growth. The American economy is continuing to run above its longer-run cruising speed and generating more than enough jobs to push down unemployment.
Inflation remains below the Federal Reserve’s target, but appears to be slowly picking up speed. On an annualized basis, core prices were up 2.5% in October.
