The Bureau of Economic Analysis reported that consumer spending rose 0.6 percent in September, a healthy increase from the 0.2 percent increase in August. This increase is notable because personal income rose only 0.1 percent, and when adjusted for inflation, disposable personal income fell 0.1 percent. Real personal consumption, in 2005 dollars, was up 0.5 percent after being flat last month.
As a result of consumer spending outstripping income growth, consumers dipped into savings to pay for their purchases. The savings rate now stands at 3.5 percent, down from 4.1 percent in August and 5.3 percent in June. Yesterday, we learned that 1.7 percent of the 2.5 percent increase in real GDP growth was attributed to consumption. So long as consumers must dip into their savings to spend, it will be difficult for us to sustain these contribution levels moving forward.
Within manufacturing, wages and salaries fell from $713.2 billion in August to $712.1 billion in September. Given some of the weaknesses in the sector in recent months, this is not surprising. It is important to point out that despite the declines in manufacturing compensation in the past two months, wages and salaries have been on an upward trend over the past two years. Manufacturing wages and salaries averaged $674.2 billion in 2010, for instance.
In terms of spending, durable goods purchases rose 2.2 percent in September, reversing the 1.1 percent decline of August. Nondurables rose by 1.1 percent, its third consecutive monthly gain.
Over the past year, personal income has grown 4.4 percent, with consumption up 5.3 percent. The implied inflation rate using the personal consumption expenditure deflator is 2.9 percent relative to last year, and the core inflation rate, which excludes food and energy costs, is 1.6 percent. Both of these figures have edged slightly higher over the course of this year.
Meanwhile, the University of Michigan and Thomson Reuters said that consumer confidence was slightly higher in October. Since falling dramatically to 55.7 in August, consumer sentiment has risen to 59.4 in September and 60.9 in October.
This contrasts with the consumer survey from the Conference Board that was released earlier in the week, as it found the public extremely pessimistic about the economy. In general, though, both of these surveys, while they are currently moving in opposite directions, show that Americans continue to be worried about where the economy is headed.
For the University of Michigan survey, the main mover was the index for future expectations, rising from 49.4 in September to 51.8 in October. While an improvement, it still represents anxieties, as this index was 69.5 in May. The index for present conditions was up slightly from 74.9 to 75.1.
Consumers’ expectations of inflation eased somewhat, with individuals now predicting 3.2 percent price increases over the next year. This figure has been 4.6 percent in April.
Chad Moutray is chief economist, National Association of Manufacturers.