The Beige Book, Pt. II

From the Federal Reserve:

Consumer spending was up slightly in September. The majority of Districts reported increases in auto sales, with the largest improvements in San Francisco and New York. Several Districts noted a greater availability of new vehicles as the supply disruptions that had plagued auto dealerships in the aftermath of the Japanese disaster subsided. Contacts in the Cleveland, New York, Philadelphia, and Dallas Districts indicated that demand for used cars remained high and that some models were still scarce. A large number of Districts reported that non-auto retail sales were flat to down in September; but a few, such as Philadelphia, Richmond, and Dallas noted an increase in customer traffic late in the month and into early October. Back-to-school sales were described as being fairly strong in New York and satisfactory in Richmond. In addition, Boston, Chicago, Kansas City, and Dallas cited some strength in the sales of big-ticket or luxury items, while Minneapolis and Chicago noted that more consumers were trading down to value products at grocery stores.

The above report shows weak growth.  Spending was "up slightly."  The best news is the increase in auto sales, which shows some confidence in the future as long-term financing is typically required for these purchases.  However, the fact that non-auto purchases were weak or down in most districts is concerning.

Let's look at the data.

Real PCEs have risen higher than their previous peak during the last expansion.  However, their increase has stalled over the last 6 months; they flat-lined for four months, bumped up higher and then moved sideways again last month.

Services are largely responsible for the increase in PCEs (remember, these account for about 65% of PCEs).  Service expenditures continue higher.

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Non-durable goods purchases (which account for about 22% of PCEs) have stalled for the better part of a year.

Durable goods purchases -- like non-durable goods purchases -- have been moving sideways for about a year as well.

Real retail sales were also moving sideways for 7 months, but bumped higher last year.

Consumer spending in the form of PCEs is still weak, with most of the gains coming from the purchase of services.  In short, the consumer is in fair shape at best.