Personal income added 0.4% month-on-month (m/m) in September, in line with market expectations. Wages and salaries increased by a solid 0.6% m/m while personal income receipts on assets were up 0.4% m/m. Controlling for inflation and taxes, real personal disposable income remained flat in September.
Personal consumption accelerated from August, rising by 0.6% and coming in ahead of the consensus forecast for 0.4%. In real terms, spending was up 0.3%, with both goods and services contributing equally to the headline number, rising by 0.4% and 0.3% m/m, respectively. Spending on nondurables rose 0.6%, while durable goods gained 0.1%, bouncing back from the pullback of 0.3% in August.
The personal saving rate fell 0.3 percentage points to 3.1% on the month.
Inflation as measured in the personal consumption deflator was unchanged at 6.1% year-over-year, while core PCE inflation (excluding food & energy) rose to 5.1% (from 4.9%). Both measures came in a tenth of a percentage point less than expected.
Key Implications
After yesterday’s advance GDP report providing quarterly growth figures, today’s monthly data offered additional details on the evolution of spending through the third quarter. Monthly spending on services slowed marginally while goods spending accelerated in the last month of the quarter. Heading into the final quarter of 2022, consumers face plenty of headwinds, including soaring inflation, high interest rates and a sizeable pull-back in wealth, all of which should continue to weigh on spending growth.
Adding to headwinds is the recent deceleration in real income growth, which has only helped to further erode consumer purchasing power. Following the annual benchmark revisions to national accounts data, the average consumer saving rate pulled back from 5.3% to 3.7%, which resulted in a downgrade of excess savings estimates to less than $1.5 trillion in Q3. While 10% lower than originally thought, households still have some cushion heading into the holiday season, though we suspect a more cautious consumer with spending likely to remain at a below-trend growth rate of just 1.0% (annualized) in Q4 2022.
