Personal Income and Spending Declines as Inflation Rises

Both personal income and spending growth slowed in October to +.2% MoM. Both were also below consensus expectations, with personal income expanding at half the pace of last month, and at the slowest rate in six months. Disposable income actually fell -.1% MoM.

Headline PCE inflation, the broadest measure, rose 2.9% YoY from 2.4% YoY the prior month. Core PCE, viewed as the Fed's favorite inflation indicator, has risen to 1.9% YoY. Core PCE rose +.2% MoM for the second month in a row.

Consumption was virtually unchanged, when adjusted for inflation, for the smallest increase since last March. Inflation adjusted durable good spending fell -.6% MoM, while purchases of non-durables fell a more moderate -.1% MoM. Inflation adjusted spending on services grew a modest +.1% MoM. The savings rate fell to +.5% from +.7%.

Over the past year, personal income has risen 6% and spending has risen 5.4%. Disposable income has risen +2.7% YoY, and inflation adjusted personal spending has risen 2.9% YoY.

The consumer is now facing numerous headwinds as wage and salaries (+.1% MoM) and job growth slow, the housing market deteriorates, and obtaining new credit becomes more difficult. The reality of the rising concern due to these factors appears to be reducing consumer spending. Obviously these are tough data figures for the Fed, as stimulating the economy to improve income and spending growth also has the potential to feed inflation.