October 2018 Incomes and Outlays

When it comes to the American economy, the consumer is the primary driver.  In order for consumers to push output ahead, they need income to spend. Fortunately, incomes continued increasing to start the fourth quarter of 2018.  According to the Bureau of Economic Analysis, personal income increased 0.8 percent in October.  After tax (aka disposable income) rose 0.5 percent as well; adjusted for inflation, real disposable income rose 0.3 percent.  And in typical American fashion, consumers spent 0.4 percent more after adjusting for inflation.

All four primary income sources rose.  Wages and salaries were up 0.3 percent; this is the largest component and should help boost consumption.  Business owners added 1.6 percent to their bottom lines in the period.  Landlords took in 0.4 percent more than a month earlier.  Finally, receipts on assets (interest and dividends) also added 0.4 percent. 

Like the income side of the ledger, all segments of personal consumption expenditures (PCE) improved.  Spending on durable goods increased 0.5 percent and nondurable wares rose 0.6 percent.  Finally, the largest segment of spending, services, rose 0.7 percent.  Since spending rose faster than incomes grew, the savings rate suffered a minor setback of 0.1 percentage point to 6.2 percent.  After a recent peak of 7.4 percent in February of this year, Americans’ savings rate has been decelerating.

Important inflation data are also contained in this release.  The PCE price index rose 0.2 percent and is up 2.0 percent from a year ago.  Likewise, the core-PCE price index, which excludes food and energy because of their volatility, edged up 0.1 percent and has climbed 1.8 percent versus 12 months earlier.

Overall, this is a strong release.  It pushes against many of the other indicators which seem to be slowing.  Its large size and influence over the economy make it that much more encouraging.  Our labor market has been adding jobs at a rapid rate, helping the wages and salaries figure.  We’ll get a look at November’s jobs figures tomorrow morning which could provide a hint into how this indicator will look when data for the penultimate month of 2018 is released.