Personal Income, Spending Up

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

The figures add color to Thursday’s report on gross domestic product (GDP), which showed personal spending rose by an annualized 40.7 percent 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.

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 that 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 percent. In February, when the unemployment rate was at a 50-year low, the savings rate was 8.3 percent.

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

What Bloomberg Economists Say…

“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, Bloomberg economists

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

Although spending on services remains depressed, there has been steady improvement. Starbucks Corp. CEO 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 percent from the prior month and was up 1.4 percent from a year earlier. The core PCE price index, which excludes food and energy, increased 1.5 percent in September from a year earlier, less than projected. Policymakers view the core gauge as a better indicator of underlying price trends.

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

—With assistance from Kristy Scheuble.

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