- Personal income advanced by 0.3% in September month-on-month, cooling from a 0.5% gain in August. Disposable income growth also slowed, weakening from 0.6% to 0.3% in September. A more concerning development was that wages and salaries remained unchanged, the weakest result since February 2016.
- Despite slowing income growth, spending held steady in September, growing by 0.2% month-on-month in line with consensus expectations. Spending was also revised up in August.
- The overall PCE deflator was unchanged on month-on-month basis. In year-on-year terms, it was a touch lower at 1.3% from 1.4% in August. Excluding food and energy, the PCE deflator edged down from 1.8% y/y to 1.7% in September.
Key Implications
- It’s now a familiar theme. Consumption growth continued to be solid, while weakness creeps up in other areas of the economy. Today’s data, with the upward revision in August, set up consumption to grow at a decent clip through the remainder of the year.
- From the income angle, gains continued to be decent. However, the decline in wage and salaries growth is concerning. Wages and salaries were down in the manufacturing sector, which is a reflection of the GM strike. That said, services sector wages and salaries also decelerated. If the weakness is sustained, it could result in a pull-back in consumption.
- The Federal Reserve signaled yesterday that the bar is now high for additional rate cuts, and today’s data would do little to change their stance. With consumption looking like it will grow at a sturdy pace through the remainder of the year, the Fed will be comfortable in sitting back as past interest rate cuts make their way through the economy.
