October Personal Incomes and Outlays

Consumers spending increased in October despite a slowdown in personal income and the government shutdown according to the Bureau of Economic Analysis. The outlay increase of 0.3 percent improved over September’s tally of 0.2 percent. Income was challenged in the period as it fell by 0.1 percent. Finally, the inflation gauge imbedded in this report barely budged.

The fourth quarter started with a slight uptick in consumption. Firms may have been correct to stock up on their wares, helping to calm any concerns about the inventory build seen in the third quarter. Durable goods (items expected to last longer than three years) sales improved more than both nondurable and service transactions. Automobile sales led the uptick.

Contrary to the pace of spending, personal income fell to start the fourth quarter. An anomaly in the prior month partially caused the decrease. There was a $10 billion class-action settlement in September between the U.S. Department of Agriculture and a group of farmers that boosted the category of farm proprietors’ income for one month. Other areas of earnings improved including the biggest component, salaries and wages.

Price growth remained tepid in October. The monthly change in the price index included in this report fell less than 0.1 percent after being up 0.1 percent in the prior period. The personal consumption expenditures index excluding food and energy (core PCE), the Federal Reserve’s favorite inflation indicator, was also up less than 0.1 percent; year-over-year, this important price measure has only increased 1.1 percent.

When everything in this indicator is considered, the fourth quarter appears to have started off on the right foot. The consumer represents over two-thirds of the economy, so seeing the outlays portion of this indicator grow is encouraging. Also, inflation does not appear to be an issue at the moment and will help the central bank justify its continued attempts to goose the economy. (by C. Cox)