Consumers Tap Savings to Spend at Fastest Pace Since 2009: Real Income Drops, Core Inflation Slight

In the wake of the hurricanes, consumers tapped savings to spend at the fastest paces since August 2009. Core PCE inflation (not counting food and energy) was 0.1% but overall PCE inflation was 0.4%. The savings rate is the lowest since 2008.

The BEA's Personal Income and Outlays report for September shows:

  • Personal income increased $66.9 billion (0.4 percent)
  • Disposable personal income (DPI) increased $53.0 billion (0.4 percent)
  • Personal consumption expenditures (PCE) increased $136.0 billion (1.0 percent).
  • Real DPI decreased less than 0.1 percent.
  • Real PCE increased 0.6 percent.
  • The PCE price index increased 0.4 percent
  • The core PCE index which excludes food and energy increased 0.1 percent.

The above data was reflected in the GDP report on Friday.

Savings Rate Declines

Households dipped into their savings to fund purchases last month, pushing savings to their lowest level since 2008.

“Relying on consumer savings to move the economy forward is not going to last for long,” said Chris Rupkey, chief economist at MUFG in New York.

Core PCE, the Fed's prefered measure of inflation, rose a mere 0.1% for the fifth consecutive month. Core PCE has underperformed the Fed's target for over five years.

Mike "Mish" Shedlock

Core PCE is exactly like Marie Antionette telling the peasants to eat cake (even if that quote was misattributed). The Fed isn't on Obamacare. The FOMC members and their staff -- like all of Washington DC -- lives in a la-la land where pensions are guaranteed (by the suffering of peasants) and job security is absolute. Taxpayers get fired / laid off for all sorts of silly reasons -- many outside the taxpayers control (like Obamacare costs for example)... government bureaucrats never get fired, never get laid off, always get a cost of living increase whether they deserve it or not.

Trump got elected because a billionaire real estate mogul is better able to relate to "us peasants" than our so-called representatives. That is not a feather in Trump's cap, it is a condemnation of the arrogance and corruption that is Washington DC -- both parties

Tapping savings at this stage in an expanding economy is a red flag. There are two categories of people who are tapping their savings to spend: 1.) They lost their jobs. and 2.) those who feel they absolutely won't lose their jobs. With such low unemployment, I'm leaning toward those in the second camp who had the stronger influence on the consumer spending increase. Psychologically, this is a manifestation of optimism at a point where the economy is about to contract.

Throws light on the crock that monetary policy is i.e. aggregate demand is "too low" so .... let's lower interest rates and induce the plebs to spend more.

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