- by New Deal democrat
Personal income and consumption is one of the two big monthly reports on the state of the average American, in addition to the jobs report. This month it has the added virtue of being the “least stale” monthly report, as it was issued only five weeks later than scheduled. Ever since “Liberation Day” in April, I have looked for the impact of tariffs on both personal spending and manufacturers’ sales. Additionally, there has been evidence since January that income and spending might be slowly rolling over in any event. This morning’s data for September added at that concern.
Nominally income rose 0.4% and spending 0.3%. But since the PCE inflation gauge rose 0.3%, real income only increased 0.1% and real spending was flat:
[Note: with the exception of the personal saving rate, and one YoY graph, all of the data in the below graphs is normed to 100 as of just before the pandemic.]
Since real spending on services (blue, right scale) rarely turns down, even in recessions, I focus on goods (red, left scale), and on an even more granular basis on durable goods spending. In September real spending on goods (red) declined -0.4%, and on durable goods (gold) even more, by -0.6%:
Because the monthly data can be noisy, I have been particularly looking at the three month average. For durable goods, this looks like it peaked in March through May. For goods spending as a whole, the three month average only increased 0.2% for July through September, and was only up 0.5% since March through May. This is very close to rolling over into contraction.
But if the real spending side of the coin merits a yellow flag, the real income and savings side was more sanguine.
I follow the personal savings rate because just before and going into recessions it tends to turn up as consumers get more cautious. After revisions this was unchanged at 4.7% in September:
Additionally, one of the two coincident indicators from this report which the NBER pays close attention to in dating recessions is real income less government transfers. This increased 0.1% to a new record high (blue, right scale):
On a YoY basis (red, left scale) after decelerating for almost three years, the latest data shows stabilization since May. Hence the relatively good news on the income side of the coin.
Normally the second coincident metric looked at by the NBER, real manufacturing and trade industries sales, is also reported with a one month delay at the same time as personal income and spending, but this month that was not the case.
In summary, this was a mixed report. On the positive side, although growth has slowed, the positive trend in real income is intact, as is the neutral trend in personal saving. On the negative side, real spending on goods and in particular durable goods declined, with the latter having made at least a temporary peak back in springtime. The former must increase at least 0.1% (subject to revisions) in the next report in order for the three month average not to decline.
