Personal income fell 0.1% in September, falling well short of market expectations for a 0.5% monthly gain. Income growth in August was revised down to 0.4% from an original estimate of 0.5%.
Real disposable income fell 0.3% on the month, after a 0.2% expansion in August.
Personal consumption, on the other hand, expanded by 0.2% on the month, although this was also below market consensus, which was pegged at 0.4%. In real terms, personal consumption gained 0.1%.
Analysis of consumption by component shows spending in durable goods rose by 0.8% and spending on services gained 0.06%. On the other hand, spending on non-durable goods fell by 0.2%.
The personal saving rate fell to 5.3% from a downwardly revised 5.6% in August.
Inflation (as measured by the year-over-year change in the market-based personal consumption deflator) fell slightly to 1.1% in September, while the annual market-based core inflation rate came down 0.1 percentage points to 0.9%.
Key Implications
September's real personal consumption figure is aligned with the advanced GDP release published last Friday, which showed this aggregate expanded 1.9% on an annual basis during the third quarter.
Amidst very weak job creation, still tight credit conditions, and the need to reduce debt, households' consumption is set to grow at around 2.0% during the fourth quarter, and to accelerate very modestly to 2.2% annual growth by the end of next year. Given that private spending accounts for roughly 7/10 of GDP, this will translate into a contribution of roughly 1.5 percentage points to overall economic growth.
Today's report reaffirms the prospects of subpar economic growth and very low inflation expectations which will provide firm ground for more monetary stimulus to be announced by the Federal Reserve after the FOMC meeting concludes on Wednesday this week.
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