Highlights
Personal income in October softened while core inflation remained a little on the high side. The Fed is increasingly faced with choosing between preventing further economic weakness and slowing too high inflation. Personal income slowed to a 0.2 percent rise in October, following a 0.3 percent increase the prior month. The October boost was below the market projection for a 0.4 percent gain. Within personal income, the wages and salaries component weakened sharply to a 0.1 percent advance, following a 0.6 percent increase in September.

Personal income on a year-on-year basis dipped to up 6.0 percent from up 6.5 percent in September.

On the spending side, the consumer is increasingly cautious. Personal consumption in October rose a modest 0.2, following a 0.3 percent increase in September. The market consensus had projected a 0.3 percent gain in PCEs for October. Weakness was primarily in durables, which fell 0.5 percent, following a rise of the same magnitude the month before. For the latest month, the services component was up 0.4 percent while nondurables rose 0.3 percent. Much of the gain in consumer spending was price-related. Constant dollar spending was flat in October, following a meager 0.1 percent gain in September.

On the inflation front, the core PCE price index rose 0.2 percent in October, matching the increase in the prior month. The consensus forecast was for a for a 0.3 percent increase. The overall PCE price index increased 0.3 percent, the same as in September. On a year-on-year basis, the core rate came in at 1.9 percent, the same as in September. The overall PCE price index on the same basis jumped to 2.9 percent from 2.4 percent in September.

Today's report shows the consumer sector providing less support for the economy but also indicates that inflation may be getting stuck at a pace that is above the Fed's comfort zone. Still, the Fed now seems to be focusing on stabilizing the credit markets and then worrying about inflation after taking care of the credit markets. The numbers can be used to justify either a cut in rates or no change. But again, helping the credit markets function now seems to be the top priority. Also, the real personal consumption numbers point to a weak consumer contribution to GDP in the fourth quarter and increase the likelihood of a very soft fourth quarter GDP number.