Personal income, spending rose in September, but growth expected to moderate

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Personal income increased 0.9% in September after a 2.5% decline in August, the Commerce Department reported Friday, while personal consumption grew 1.2% after a 0.7% gain in August.

Personal consumption expenditures rose 0.2% after a 0.3% climb in August, while PCE grew 1.4% on an annualized basis, up from 1.3% a month earlier.

Core personal consumption expenditures rose 0.2% after a 0.3% climb in August, while core PCE grew 1.5% on an annualized basis, up from 1.4% a month earlier.

Economists polled by IFR Markets expected income to gain 0.4% and spending to rise 1.0%, core PCE to rise 0.2% in the month and 1.7% on an annualized basis.

“The acceleration in September’s consumption growth reflected a pick-up in durable goods consumption growth to 3.0% m/m from 0.9% m/m and a 1.5% m/m increase in nondurable goods consumption following its 0.3% m/m decline in August,” said Roiana Reid, U.S. economist at Berenberg Capital Markets.

“We expect durable and non-durable goods consumption to provide a smaller boost to overall consumption in coming quarters than in the initial stages of the recovery given that they are already above their pre-pandemic levels and services consumption will likely grow only modestly until there are trusted and widely available treatments for COVID-19,” she added. “Thus, consumption growth should moderate further in the next stage of the recovery.”

But, the decline in “the saving rate, which surged above 30% during lockdowns last spring, slipped to 14.3% in September from 14.8% in August,” concerned Diane Swonk, chief economist at Grant Thornton. “That higher-than-usual saving should provide a tailwind for spending when the economy can more fully reopen. The problem is the composition of the saving. Much of the saving from stimulus payments and supplements to unemployment insurance in the CARES Act has been spent, which has left low-wage households running on fumes.”

Consumer sentiment increased, according to the University of Michigan, with its final October consumer sentiment index rising to 81.8 from 81.2 mid-month and 80.4 in September.

Economists expected the index to stay at 81.2.

The current conditions rose to 85.9 from 84.9 mid-month, but was off from 87.8 in September.

The expectations index gained to 79.2 from the preliminary October 78.7 and the final 75.6 September read.

Separately, the Chicago Business Barometer dropped to 61.1 in October from 62.4 in September.

Economists expected a slip to 59.5.

New orders was the only one of the five main components to rise in the month, while production fell the most, according to the release.

Employment costs rose 0.5% in the third quarter, the Labor Department reported, matching the second quarter rise and economists’ projections.

The Federal Reserve Bank of Chicago’s Midwest Economy Index soared to 4.30 in September from 1.55 in August, indicating “well above trend” growth.

The relative MEI climbed to positive 0.83 from negative 6.12 in August.

Consumer spending was the biggest positive contributor in the month.

Also released Friday, the Milwaukee Institute for Supply Management report rose to a seasonally adjusted 59.42 in October from 54.49 a month earlier.

New orders slid to 59.84 from 63.28, production gained to 57.84 from 51.02, and employment increased to 50.51 from 44.79.

The blue collar index rose to 54.1 in October from 53.7 in September, while the white collar index fell to 43.1 from 50.8.

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