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Economy in Brief

U.S. Personal Income and Spending Stronger than Expected in September
by Sandy Batten  October 30, 2020

• Gains in income from private sector offset decreased unemployment insurance payments.

• Spending continued to strengthen, still led by spending on goods.

• Price inflation edged up but remained well below Fed's target.

Personal income rebounded in September, rising 0.9% m/m (6.2% y/y) following a 2.5% m/m decline in August (revised from -2.7%). Government payments for unemployment compensation fell further (the Federal government unemployment compensation add-on in the CARES Act expired in August and has not been renewed). The Action Economics Forecast Survey had expected a more modest 0.4% m/m gain in personal income. Employee compensation rose 0.8% m/m (+0.5% y/y, the first y/y increase since March). Proprietors' income jumped up 5.1% m/m; rental income rose 1.0% m/m while income from assets slipped 0.1% m/m. Personal transfer receipts edged down 0.1% m/m, mostly reflecting a second very large decline in unemployment insurance payments (-42.2% m/m in September after -52.1% m/m in August). Disposable personal income also rose 0.9% m/m (6.9% y/y) in September following a 2.9% m/m decline in August. Adjusted for inflation, real disposable income increased 0.7% m/m (+5.5% y/y) in September.

Personal consumption expenditures increased 1.4% m/m last month (-0.6% y/y) following an unrevised 1.0% m/m gain in August. This was the fifth consecutive monthly increase after the catastrophic declines in March and April. A 1.0% m/m rise had been expected. Adjusted for inflation, real spending increased a solid 1.2% m/m (-2.0% y/y) in September versus 0.7% m/m in August. The strong end to Q3 provides a good starting point for Q4 as real spending in September was 4.3% annualized above the Q3 average. The rise in spending continued to be led by spending on goods. Real spending on goods increased 2.2% m/m in September with spending on durable goods increasing 2.9% m/m and spending on nondurables rising 1.7% m/m. While real spending on services posted its fifth consecutive monthly increase, it was up only 0.8% m/m. Compared with pre-COVID peaks, spending on goods is 7.6% higher while spending on services is 7.3% lower. Clearly, spending on services, notably eating out, accommodation and travel, is still being adversely impacted by the pandemic.

Last month's rise in spending relative to income lowered the personal saving rate to 14.3% from an upwardly revised 14.8% in August. The rate reached a record high 33.6% in April. The level of personal saving fell 2.6% m/m (+108.4% y/y) in September.

The PCE chain price index increased 0.2% (1.4% y/y) in September following an unrevised 0.3% m/m rise in August. The price index excluding food and energy also rose 0.2% (1.5% y/y) after an unrevised 0.3% increase in August. Energy prices increased 0.7% (-8.1% y/y), the fourth consecutive monthly gain. Food prices eased 0.3% (+3.9% y/y).

The personal income and consumption figures are available in Haver's USECON database with detail in the USNA database. The Action Economics figures are in the AS1REPNA database.

Personal Income & Outlays (%) Sep Aug Jul Sep Y/Y 2019 2018 2017
Personal Income 0.9 -2.5 0.9 6.2 3.9 5.3 4.9
  Wages & Salaries 0.8 1.4 1.5 0.5 4.7 5.0 4.7
Disposable Personal Income 0.9 -2.9 0.9 6.9 3.7 5.8 4.9
Personal Consumption Expenditures 1.4 1.0 1.5 -0.6 3.9 4.9 4.5
Personal Saving Rate 14.3 14.8 18.1 7.3 (Sep '19) 7.5 7.8 7.2
PCE Chain Price Index 0.2 0.3 0.3 1.4 1.5 2.1 1.8
  Less Food & Energy 0.2 0.3 0.3 1.5 1.7 2.0 1.7
Real Disposable Income 0.7 -3.2 0.6 5.5 2.2 3.6 3.1
Real Personal Consumption Expenditures 1.2 0.7 1.3 -2.0 2.4 2.7 2.6
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