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Economy in Brief

U.S. PCE Fell 1.0% During October; Income Rose 0.3%
by Tom Moeller November 26, 2008

Led by a 5.9% m/m drop in consumer spending on motor vehicles (-17.8% y/y), personal consumption expenditures fell 1.0% last month. It was the third consecutive monthly decline and was the largest for any month since the recession of 1991. In fact, it was one of the largest declines in the series' history.

Spending began the fourth quarter 1.3% below 3Q. Real spending fell in October for the third consecutive month. The 0.5% decline (-0.9% y/y) left the starting point for spending 0.8% below the 3Q average and the three month rate of growth at a negative 4.0%. Real spending on motor vehicles fell at a 23.5% annual rate during the last three months. Furniture spending fell at a 10.9% rate following an 8.0% gain last year. Spending on clothing fell at a 14.6% rate during the last three months after a 4.7% rise during 2007.

Disposable personal income increased 0.4% last month following a downwardly revised 0.1% September uptick. The absence of tax rebate checks and weaker job gains have slowed y/y growth to 3.8% after last year's rise of 5.5% and of 6.4% during 2006. Adjusted for inflation disposable income rose 0.5% y/y after a 2.8% rise during all of last year.

Overall, personal income rose 0.3% last month which was slightly better than expectations. But wage & salary income ticked up just 0.1% after the 0.1% slip during September. The y/y gain of 2.3% compares to a 5.6% rise last year. Factory sector wages fell for the third straight month (-0.6% y/y) and wages & salaries in the private service-providing industries barely increased 0.1%. Their 2.2% y/y rise is roughly one-third of last year's increase. Wages in the government sector rose 0.4% (5.2% y/y).

The PCE chain price index fell 0.6% and the index returned to its June level. Lower gasoline prices, off 13.5% (+12.5% y/y) again offset the rise in food prices which rose 0.4% (6.2% y/y). The core PCE price index fell slightly and it was the first decline since 2001. The decline matched Consensus expectations. Three-month growth of 1.4% was the lowest since late-2006. Furniture prices fell yet again (-3.7% y/y) while apparel prices fell 1.1% (-0.1% y/y). Transportation costs rose 6.0% y/y while medical care prices rose 1.9%.

The personal savings rate rose sharply to 2.4%, it's highest since June, as spending fell and income rose.

The figures noted above are available in the Haver USECON and in the USNA databases.

Disposition of Personal Income (%) October September Y/Y 2007 2006 2005
Personal Income 0.3 0.1 3.3 6.1 7.1 5.6
  Disposable Personal Income 0.4 0.1 3.8 5.5 6.4 4.4
Personal Consumption -1.0 -0.3 2.3 5.5 5.9 6.2
Saving Rate 2.4 1.0 0.7 (Oct. '07) 0.5 0.7 0.3
PCE Chain Price Index -0.6 0.1 3.2 2.6 2.8 2.9
  Less food & energy -0.0 0.2 2.1 2.2 2.3 2.1
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