We got the consumption river card for 3Q alongside yesterday’s advance GDP release, but we received the detail data for household spending and income for September this morning.
In short, both the income and spending data were weaker sequentially to close out 3Q but, as has been the case in recent months, the under-the-hood dynamics remain modestly better than the headline as salary & wage growth remains strong and a rising savings rate constrains the upside in consumption growth.
SPENDING: Total Spending declined -0.2% in Sept after a strong August (+0.5% Mom) with the year-over-year and 2Y both decelerating. The story was similar across all categories as spending across Services/Durables/NonDurables all decelerated on a MoM/1Y/2Y.
Services buttressed the decline in overall goods spending and the notable retreat in durables spending, particularly. We’ll have to wait to see if the pullback in higher ticket discretionary spending is more than transient and whether it flows through in the form of a discrete moderation in consumer (revolving) credit growth which has inflected alongside the acceleration in durables consumption.
INCOME: Aggregate Personal and Disposable Income growth decelerated sequentially as did aggregate Salary & Wage growth. However, private sector wage growth continues to run at ~ +6% YoY and total salary and wage growth (i.e. private + gov’t) is running at >5% - both of which are at their best levels since the pre-recession period.
Its worth re-highlighting that income distribution data is positively skewed and the aggregate figures may (to some extent) belie the reality of the median consumer - who remains very much income constrained given the collective impact of a multi-year run of negative real income growth and all-time highs in major cost of living buckets.
SAVINGS: The Personal Savings rate ticked up to 5.6% from 5.4% prior and is now back to highest level in 2 years. The rising savings is an obvious MT/LT positive but continues to constrain spending in the immediate term. The ongoing increase in the savings rate likely represents some combination of distributional effects (ie. inequality effects as more of aggregate income goes to higher income households with lower marginal propensities to consume) and the rise in Durables consumption with households increasing savings to offset the associated financing burden.
OVERALL: September saw a modest deceleration off peak improvement on the income side while consumption growth continues to oscillate above & below middling as the savings rate continues its northward march. More broadly, and from a rate of change perspective, the balance of domestic macro data has been slowing into 4Q.
Christian B. Drake