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Economy in Brief

U.S. Personal Spending Picks Up & Income Growth Firms in September
by Tom Moeller  October 28, 2022

• Spending reflects strong service outlays.

• Income increases with stronger wage gains.

• Price inflation stays steady & strong.

Individuals remain inclined to spend, but price inflation continued to eat into the real value of both spending & income last month. The 0.6% increase (8.2% y/y) in personal consumption expenditures followed a like rise in August, revised from 0.4%. A 0.4% increase had been expected for September in the Action Economics Forecast Survey.

The nominal gain in spending was inflated by price inflation. The 0.3% rise (1.9% y/y) in real sending repeated the August rise. Real spending on durable goods edged 0.1% higher (7.9% y/y) last month as spending on motor vehicle & parts rose 0.9% (1.4% y/y) after improving 0.2% in August. Real spending of furniture & appliance held steady (-1.4% y/y) after falling 0.4%. Real spending on recreational goods & vehicles fell 0.2% (+5.8% y/y) after a 1.0% decline. Real spending on nondurable goods rose 0.6% (-2.0% y/y) after edging 0.1% higher in August as outlays on gasoline & other energy products surged 3.0% (-2.4% y/y) following a 2.4% August increase. Apparel spending jumped 1.3% (-0.2% y/y) following two months of firm increase as real outlays on "other" goods rose 0.4% (0.8% y/y). Food & beverage buying eased 0.3% (-5.6% y/y), falling in most months of this year. Spending on consumer services improved 0.3% (3.1% y/y) after rising 0.5% in August when adjusted for inflation. Real transportation services outlays improved 0.8% (3.9% y/y) after strengthening 2.0% but real housing & utilities expenditures rose only 0.1% (1.1% y/y) after holding steady in August. Real healthcare spending gained 0.3% in September (1.5% y/y), the same in the prior month. Recreation services buying improved 0.2% (5.7% y/y), half the August increase when adjusted for higher prices, but real expenditures at restaurants & hotels strengthened 0.6% (5.3% y/y) after a 0.9% August increase.

Inflation remined firm last month. The PCE chain price index rose 0.3%, the same as in August. The 6.2% y/y rise also was steady but remained below the June peak of 7.0%. It was nearly the highest rate of price inflation in over 40 years. A 0.5% m/m increase in the price index less food & energy also replicated the August gain. The 5.1% y/y gain was the biggest rise since the autumn of 1983. Food & beverage prices were up another 0.6% (11.9% y/y). Energy prices, in contrast, slid 2.4% (+20.3% y/y), the third straight monthly drop.

A second consecutive 0.6% rise (5.3% y/y) in the services price index powered the overall gain, driven by a 2.1% jump (16.4% y/y) in transportation prices. Housing & utilities costs rose 0.8% (8.0% y/y), following a 0.9% gain. Recreation services costs held steady (4.5% y/y) after falling 0.2%. The gain in the durable goods price index of 0.4% (5.7% y/y) came after a 0.5% August increase. Motor vehicles and parts (9.1% y/y) and home furnishings (8.6% y/y) each rose 0.1% in September. Recreational goods and "other" durable goods prices rose 0.5% (0.9% y/y) and 1.7% (2.9% y/y), respectively. Nondurables prices moved in the opposite direction, falling 0.4% (+9.5% y/y) as energy prices moved lower. The overall decline included a 0.5% drop (+5.7% y/y) in apparel prices which came after a 0.3% rise.

Personal income rose an expected 0.4% (5.2% y/y) during September, the same as in the prior two months. The gain reflected a 0.6% rise (8.2% y/y) in wages & salaries, mirroring continued employment growth. A 0.2% rise (4.7% y/y) in proprietors' income was accompanied by a second straight 0.2% gain (8.5% y/y) in rental income. Receipts on assets rose 0.4% (4.9% y/y) as interest income increased 0.6% (5.9% y/y) and dividend income improved 0.3% (3.8% y/y). Personal transfer receipts slipped 0.1% (-2.0% y/y). Disposable income rose 0.4% last month (3.2% y/y) after increasing 0.5% in August while real disposable earnings held steady (-2.9% y/y) following a 0.2% rise.

The personal saving rate fell to 3.1% in September, nearly equaling the lowest rate since April 2008. The level of personal savings fell 8.5% and was 59.3% lower y/y.

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

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