No Tricks in the Income and Spending Report, Just Treats
- U.S. Personal Income increased by 0.3 percent in September.
- After inflation and taxes, Real Disposable Income was unchanged for the second month in a row.
- Nominal Consumer Spending increased by 0.5 percent in September.
Solid consumer spending is still the fundamental story of this economy. With unit auto sales climbing to a 17.8 million unit rate in September and gasoline prices up, nominal consumer spending increased by 0.5 percent for the month. After adjusting for inflation, real consumer spending gained 0.3 percent in September and was up 2.4 percent over the previous 12 months. We expect to see no further meaningful gains to auto sales over the next year, and that will take the wind out of consumer spending on durable goods. However, we expect to see ongoing gains in the largest spending category – services – in the months ahead, and that will help to stabilize the U.S. economy and contribute to moderate GDP growth over 2017. Nominal personal income increased by 0.3 percent in September, as wages and salaries also increased by 0.3 percent. Rental income gains were still strong in September, with the category up 0.6 percent, supported by tight real estate markets and increasing rents. After accounting for inflation and taxes, real disposable income was unchanged again in September after no change in August. Personal taxes increased by 0.5 percent for the month. The personal consumption expenditure (PCE) price index increased by 0.2 percent in September. Over the previous 12 months the PCE price index was up 1.2 percent, showing weak inflation. The core PCE price index (less food and energy) gained 0.1 percent in September and was up by 1.7 percent over the previous 12 months. We expect inflation indicators to continue to normalize to around 2 percent year-over-year through the first half of 2017. With nominal spending increasing more than nominal disposable income, the personal saving rate ticked down to 5.7 percent in September. With consumers reasonably confident and house prices increasing, we expect the personal saving rate to remain stable in the range of 5.5 to 6.0 percent in the coming months, meaning that consumers will continue to spend their income gains.
The Chicago Purchasing Managers Index for October dropped by 3.6 points to a still-positive 50.6, indicating that momentum in manufacturing activity in the Chicago area is easing. Both production and new orders weighed on the headline PMI.
Market Reaction: U.S. equity markets opened with gains. The yield on the 10-year Treasury bond is down to 1.83 percent. NYMEX crude is down to $47.41/barrel. Natural gas futures are down to $3.24/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Personal Income 10-31-16.