Personal Income Weaker Than Expected

Personal income increased 0.2 percent in October, which was less than expected. Personal spending increased 0.2 percent off an upwardly-revised base in September, which makes the October number more encouraging.

Personal Spending Takes the Lead in Q4

Although personal spending was lower, at 0.2 percent, than the 0.3 percent markets were expecting, the upward revision in September, from a decline of 0.2 percent to unchanged, made the October 0.2 percent improvement a much better reading for personal consumption. Furthermore, the chained, real personal consumption expenditure reading increased 0.2 percent versus 0.0 percent in the previous month as inflationary pressures remained muted.

Personal consumption expenditures in goods increased only 0.1 percent after a large 0.6 percent drop in the previous month, due to the strong decline in durable goods consumption, which dropped 1.1 percent. Durable goods consumption remained weak in October, posting a drop of 0.2 percent. Overall personal consumption expenditures during the month were supported by a partial recovery in nondurable goods consumption, which increased 0.2 percent in October versus a drop of 0.3 percent in September, while consumption of services were up a strong 3 percent.

Income Lower than Expected, But the Devil is in the Details

Although personal income came in lower than expected, at 0.2 percent versus expectations of 0.3 percent, the details are much better than the overall number, especially when compared to the September result. Almost every component of personal income in October was either equal to or better than the September result. The only exceptions were transfer payments, which increased 0.2 percent in September versus a drop of 0.1 percent in October, and rental income, which gained 0.7 percent in September versus a 0.4 percent increase in October. Wages and salaries as well as supplements to wages and salaries inched higher by 0.3 percent in October versus 0.2 percent in September, while proprietors’ income increased 0.5 percent versus a drop of 0.1 percent in the previous month.

So why is it that personal income increased at the same rate in October as it did in September? The answer is that the 0.2 percent increase in personal income in September was actually 0.166 percent, while the 0.2 percent increase in personal income in October was actually 0.222 percent. That is, the 0.2 percent in September, due to rounding, was less than the reported 0.2 percent versus October’s number, which was more than 0.2 percent. This may not be a huge difference in percentage terms but it makes huge difference in billions of dollars terms.

The other less-than-stellar result in the personal income release was that real disposable personal income increased by only 0.1 versus a 0.2 percent in nominal terms. This seems to be a weaker than expected start for income of the fourth quarter, but there is plenty of time to catch up.