Personal income is the dollar value of income received from all sources by individuals. Personal outlays include consumer purchases of durable and nondurable goods, and services. Why Investors Care
| Released on 11/26/08 For Oct 2008 | |||||||||||||||||||||||||
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Highlights
The October personal income report showed consumers pulling back sharply on spending. Meanwhile, headline inflation fell as core inflation came to a standstill. Personal income in October posted a moderate 0.3 percent gain in October, following a 0.1 percent rise in September. The October rise was above the consensus projection for a 0.1 percent increase. But strength for the month was temporary and due to a rebound in rental income. Rental income had been depressed in September due to hurricanes. Payroll income, however, was soft. The wages and salaries component nudged up 0.1 percent, following a 0.1 percent dip in September.
Consumers cut back on shopping in the latest month as personal consumption expenditures plummeted 1.0 percent, following a 0.3 percent decline the month before. The October number came in just below the forecast for a drop of 0.9 percent. Weakness in the latest month was led by durables which fell a monthly 4.0 percent with nondurables dropping by 2.5 percent. These were from decreases in auto and gasoline sales. Services spending edged up only 0.3 percent. On the inflation front, the headline PCE price index dropped 0.6 percent after rising 0.1 percent in September. The core PCE price index was unchanged, following a 0.2 percent rise in September. The market expectation was for no change in the October core index.
Year on year, personal income growth was little changed at up 3.3 percent, compared to up 3.2 percent in September. Headline PCE inflation slowed to up 3.2 percent from up 4.1 percent the prior month. Core PCE inflation slipped to 2.1 percent from 2.4 percent in September. Both headline and core PCE price inflation are headed closer to the Fed's implicit inflation target range of 1-1/2 to 2 percent annualized. Continued weak oil prices and soft consumer spending likely will get inflation within the Fed's target within a few months. If you believe the reports that the Fed will ease further from the current 1 percent Fed target, today's news certainly keeps the door open for such a move.
The October personal income report clearly shows further retreat by the consumer sector. Fourth quarter spending in real GDP is likely to fall significantly. Today's news should be a negative for equities - especially in light of how bad today's durables orders report was.
Personal income in September was sluggish, edging up 0.2 percent, following a 0.4 percent rebound in August. The wages and salaries component was even more anemic, nudging up a slim 0.1 percent in September, after posting a 0.4 percent boost the previous month. Nonetheless, consumers were pulling back on spending as personal consumption expenditures dropped 0.3 percent, following no change in August. However, lower oil prices and a weakening economy are having favorable effects on inflation. Headline PCE price inflation remained modest, rising an incremental 0.1 percent, following a flat reading in August. The core PCE price index inflation rate was unchanged with a 0.2 percent. Looking ahead, the employment report for October posted a 0.2 percent drop in payroll employment and a modest 0.1 percent rise in wages - implying a small decline in wages & salary income. A 2.8 percent drop in October retail sales and an 18.9 percent plummet in motor vehicle sales point to a fall in the durables and nondurables portion of personal consumption. But the PCE inflation numbers should be favorable as the headline CPI fell 1.0 percent in October and even the core CPI slipped 0.1 percent.
Personal income Consensus Forecast for October 08: +0.1 percent
Range: -0.3 to +0.4 percent
Personal consumption expenditures Consensus Forecast for October 08: -0.9 percent
Range: -1.6 to 0.0 percent
Core PCE price index Consensus Forecast for October 08, m/m: 0.0 percent
Range: -0.1 to +0.2 percent
Core PCE price index Consensus Forecast for October 08, y/y: +2.1 percent
Range: +2.0 to +2.4 percent
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Changes in taxes or social security cost of living adjustments can cause some sharp variations in monthly disposable income growth. However, on the whole, monthly changes in disposable income fluctuate less than monthly changes in personal consumption expenditures. |
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Monthly changes in personal consumption expenditures are usually skewed by large changes in spending on durable goods. Spending on nondurable goods and services tend to be less volatile from one month to the next. |
| Personal Income and Outlays: 2008 Release Schedule | ||||||||||||||||||||||||||
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