Personal income advanced 0.4% month-on-month (m/m) in November, above market expectations for a more modest gain of 0.3% m/m. Compensation of employees (+0.5% m/m) and personal income receipts on assets (+0.5% m/m) accounted for most of the strength in personal income.
Controlling for inflation and taxes, real personal disposable income was up a healthy 0.3% m/m in November.
Personal consumption lost momentum, rising modestly by 0.1% m/m – below the consensus forecast for a 0.2% gain.
In real terms, spending was up 0.1%, with services accounting for all the gains – rising by 0.3% m/m. Growth was supported by spending on food services and accommodations. Spending on goods declined 0.6% m/m, mostly driven by a drop in purchases of new motor vehicles.
The personal consumption price deflator rose 0.1% on the month, and 5.5% on a year-on-year basis. Core PCE rose 0.2% m/m, decelerating to 4.7% year-on-year (from 5.0% in October).
The personal saving rate rose for the first time in the past four months from a downwardly revised 2.2% to 2.4% in November. It remains below the pre-pandemic average of 7.5%.
Key Implications
Despite the solid reading on personal income, consumer spending on material things remained tepid. That said, an upward revision to October, alongside continued momentum in services spending suggests Q4 personal consumption expenditures is still tracking a robust 3.2% (annualized).
Much to the Fed’s delight, three-months annualized core PCE inflation dropped below the policy rate, making the latter more restrictive. This will test the resilience of the American consumer who has already spent half of their pandemic savings, implying households will need to increasingly rely on credit. This is likely to lead to more precautionary behavior, leading to a marked slowing in spending over the coming quarters.
