Personal spending rose 0.7% M/M in October, while personal income advanced by 0.2% M/M.
- Core PCE inflation bumped higher, rising by 0.2% M/M, with the pace of annual inflation rising slightly
to 1.4% Y/Y
- In real terms, personal spending was up 0.4% M/M, while real personal income advanced by 0.2% M/M
U.S. consumer spending advanced by 0.7% M/M in October, following the downwardly revised -0.6% M/M decline in September (originally reported as -0.5% MM). This was stronger than the market consensus, and in all likelihood can be attributed to improving economic prospects as well as some one-off factors. One factor was secondary spending to support the rush of home sale closing in October due to the anticipated end of the first-time home buyers’ tax credit (which has since been extended to April 2010). Additionally, the consumption that was brought forward in August due to the cash-for-clunkers program was unwound in September, so it is likely that a little bit of the spending pop this month was a result of normalization in seasonal spending. In real terms, personal spending was up a less pronounced 0.4% M/M. Personal income was also stronger than expected, printing at 0.2% M/M, while the prior month was revised higher to 0.2% M/M (originally reported as 0.0% M/M in September). Labour income was up slightly during the month at 0.04% M/M. In terms of details, there were some very encouraging signs on the state of U.S. consumer spending. In particular, durable goods expenditures rebounded slightly from the downwardly revised drop in September (-8.53% M/M), advancing by 2.09% M/M. Additionally, there were reasonable gains in expenditures of non-durable goods, which were up 0.44% M/M. Lastly, expenditures on services were up 0.54% M/M, which is the highest monthly advance since April 2007. On the inflation front, the pace of core PCE inflation rose more than expected, rising by 0.2% M/M (0.263% M/M to three decimal places), with the annual pace of core PCE inflation rising slightly to 1.4% Y/Y. This merits continued watching, given the upside surprise to CPI as well. This was a strong report, and highlights that government stimulus efforts are propping up consumer spending. Additionally, there is some evidence of decent organic growth. Going forward though, outside of government support, weak labour markets and a slow trajectory of recovery should subdue the monthly pace of advance in the spending category.