Personal income rose 0.4% in September, on par with consensus. Controlling for inflation and removing taxes, real personal income was flat on the month.
Personal consumption rose by 1.0% in nominal terms, a hair above market expectations for 0.9%. In real terms, spending was up 0.6%, rebounding strongly from the hurricane-related pullback in August.
By component, real spending on durable goods led the way, rising by 3.5% (following a 1.4% decline in August). Spending on non-durable goods and services were both up a strong 0.3%.
Prices rose 0.4% in September, due mainly to energy, which rose 6.8% (non-annualized). As a result, inflation accelerated to 1.6% y/y from 1.4% in August. Core PCE inflation, on the other hand, remained steady at 1.3%.
Key Implications
September’s strong spending growth makes up for August’s weakness, and also implies a strong handoff for growth in the fourth quarter. Perhaps the only source of caution is the weakness in real income growth, but this too was affected by hurricanes and is likely to recover as the job market returns to normal in Q4.
Outside of the volatility in energy prices, inflation remains soft. Alas, the debate between monetary policymakers who point to strong economic activity and those who point to weak price growth will remain. This means that even as the Fed continues to raise its key lending rate (we anticipate the next hike this December), the process will continue to be at the measured pace we have seen so far.
