U.S. Personal Income, Spending Increase by More Than Forecast

Americans’ incomes increased in September by more than expected, boosted by employment gains and helping to propel consumer spending at the end of the third quarter.

Personal incomes rose 0.9% from the prior month following a 2.5% decline in August, a Commerce Department report showed Friday. That compared with estimates for a 0.4% gain. Household outlays advanced 1.4%, also exceeding forecasts.

The figures add color to Thursday’s report on gross domestic product, which showed personal spending rose by an annualized 40.7% in the quarter, by far the most on record. The economic recovery’s strength has consistently surprised over the past several months, thanks in part to a resilient consumer.

U.S. Personal Income, Spending Increase by More Than Forecast

Hundreds of thousands more Americans headed back to work in September as the labor market continued to slowly recover, putting more cash in wallets. Though the extended stalemate between lawmakers on additional stimulus relief could restrain growth in incomes, further job gains and a still-elevated savings rate should support consumer finances into the fourth quarter.

The supplemental jobless payments President Donald Trump authorized in early August also lent an extra boost to incomes, the report showed. “Other” transfer receipts totaled an annualized $963.9 billion during the month, up from about $716 billion.

GDP rose by a record in the third quarter, and the better-than-expected September spending figures suggest the economy headed into the final three months of the year with solid positive momentum. At the same time, the pace of growth in outlays is seen moderating.

The personal saving rate fell for a fifth month but remained elevated at 14.3%. In February, when the unemployment rate was at a 50-year low, the savings rate was 8.3%.

The income and spending report showed wages and salaries rose 0.8% in September. Unemployment insurance payments made up 1.8% of annualized income in September, compared to 7% three months earlier.

What Bloomberg Economics Says...

“The strong midyear wave of Cares Act stimulus receded further in September income data, while wage income and emergency payments from President Trump’s executive orders picked up the slack. Accumulated household savings are nonetheless historically high, which can help to smooth the slowdown in aggregate consumer spending we see evolving into the fourth quarter.”

-- Andrew Husby, Yelena Shulyatyeva and Eliza Winger, economists

For the full report, click here

While the chances of a stimulus package by Election Day on Tuesday have evaporated, House Speaker Nancy Pelosi said Thursday it’s still possible to get a deal on fiscal stimulus with the Trump administration before the start of the new congressional and White House terms in January.

Adjusted for inflation, consumer spending increased 1.2% in September after rising 0.7% in August. Real outlays for durable goods, such as motor vehicles, rose 2.9% in September from a month earlier, while services spending climbed 0.8%.

While spending on services remains depressed, there has been steady improvement. Starbucks Corp. Chief Executive Officer Kevin Johnson said on the company’s earnings call Thursday that the coffee giant’s September business had largely rebounded from the depths of the crisis five months earlier. “I could not be more pleased with our U.S. sales recovery, which progressed faster than we anticipated in our final quarter of fiscal 2020,” he said.

The broader personal consumption expenditures price gauge, which the Federal Reserve officially targets, rose 0.2% from the prior month and was up 1.4% from a year earlier. The core PCE price index, which excludes food and energy, increased 1.5% in September from a year earlier, less than projected. Policy makers view the core gauge as a better indicator of underlying price trends.

The central bank doesn’t anticipate inflation will pose a threat to the economy any time soon, and policy makers have signaled they plan to hold rates near zero through 2023.

©2020 Bloomberg L.P.

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