A new report from the U.S. Department of Commerce showed that personal income for Americans rose by 0.4 percent in October, slightly better than anticipated. During this same period consumer spending, which accounts for more than two-thirds of the economy (GDP), rose by 0.3 percent. That was a big slowdown from September but largely expected as the post-hurricane spike in automobile sales continued to cool. On a year-over-year basis, real (inflation-adjusted) consumer spending in October remained stuck in the narrow range of the past two years, while annual growth in real personal income for Americans accelerated to the fastest pace since July 2016.
The latter is in part related to the continued tightening of the U.S. labor market, as evidenced by rising complaints about quality of labor from business owners. Further, the number of times “wage pressure” was mentioned in corporate earnings calls jumped to a new cycle high recently. Rising worker compensation can lead to broader price increases down the road but for now inflation pressures remain muted. In fact, the core personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred measure of consumer inflation, rose by just 1.4 percent in October. That was a slight uptick from September but still one of the slowest paces of annual growth recorded in the past two years and well below the FOMC's 2 percent “target.” However, recent speeches by Federal Reserve officials reiterated that the committee believes inflation is being held down by “transitory factors,” and the bond market remains in general agreement that another rate hike will occur at this month’s monetary policy meeting.
Sources: Econoday, Bloomberg, ZH, U.S. DoC, FRBSLPost author: Charles Couch