US Income & Spending (Sep.)

Consumption growth accelerates; incomes rising again

Real consumer spending increased by 1.2% m/m in September, representing a slight re-acceleration from the 0.7% gain in August. The fast finish to the end of the third quarter means that even if real consumption only increases by 0.5% m/m in each month of the fourth quarter - which is what we have penciled in - the overall annualised gain would still be 8.5%.

The good news is that personal incomes increased by 0.9% m/m last month, with real personal disposable income increasing by 0.7%. Unemployment insurance payouts fell slightly and government wage payments dropped back as the Census was wound down. But those declines were more than offset by gains in private wages and proprietors'' income. Whereas consumption is still more than 2.0% below the pre-pandemic level, incomes are around 3.5% higher. The saving rate did fall slightly in September but, at 14.3%, it remains elevated and leaves scope for further gains in consumption in the months ahead.

Finally, the core PCE deflator - the Fed's preferred inflation measure - increased by 0.2% m/m in September, with the annual inflation rate rebounding to 1.6%, from 1.4%. But the three-month annualised inflation rate was still 3.2%, illustrating that the bounce-back in prices has been much stronger than we originally anticipated.

Paul Ashworth, Chief US Economist, paul.ashworth@capitaleconomics.com