- Personal income surprised by posting an increase of 0.9% versus the expected decline of 2.5%. The biggest boost came from lost wages supplemental payments – the program authorized by president Trump’s executive order to replace the expired Pandemic Unemployment Compensation program. This program grew by 25% to $297.1 billion (annualized) from $21.5 billion in August. Wages and salaries increased by 1.5% month-on-month, but are still 2.5% below February levels.
- Echoing the surprise in personal income, real personal disposable income (removing price changes and taxes) increased by 0.7%.
- Spending increased by 1.2%, two ticks above the median consensus estimate of 1.0%. Both goods and services posted positive gains. Growth in goods saw the biggest increase and reversed its negative growth jumping from -0.3% m/m to 2.2% in September. Consumption of durables was once again the biggest contributor with 2.9% growth m/m. Spending on services saw a modest increase of 0.8% m/m.
- The personal saving rate edged down to 14.3% in September from 14.8% in August, still eight percentage points above February levels.
- In terms of prices, the overall PCE deflator advanced by 0.2% (month-on-month) and 1.4% (year-on-year), while the core index (which excludes the most volatile food and energy components) continued to push higher, rising by 1.5% y/y.
Key Implications
- Following yesterday’s Q3 GDP report, the ascent in consumer spending was not surprising, Still, the acceleration to end the quarter provides a solid handoff for the fourth. September marks the fifth consecutive month of positive spending growth. Total spending is now only 2.3% shy of its pre-pandemic level in February.
- Gains are likely to slow going forward, especially within services given the recent spike in COVID cases. There is also a limit to the expansion in goods spending – much of this appears to be pulled forward, but you only need to stock your home gym once, and durable goods spending could very well drop in the months ahead.
- Still, the rise in personal income is decidedly good news. Positive growth in wages and salaries and some continued drawdown of elevated savings should support modest growth in spending through the end of this year.
- The paramount menace to the outlook remains the health crisis itself. New COVID cases are at record highs on the daily basis and more lockdowns may be just around the corner. With the stimulus package unlikely to be implemented until after the election, the recovery path from the coronavirus shock remains highly uncertain.
