Will Slowing Income Growth Spoil The Party?

Job openings on the last business day of September rose to 3.4 million, the Labor Department reports. That’s up from 3.1 million in August. Here’s one more statistic for thinking that the U.S. economy continues to grow. Coupled with moderately positive job creation in the private sector for October,, one might reason that the recession risk is falling. The higher “churn” rate in the job market echoes the sentiment, Catherine Rampell explains. But let’s not forget that there are still plenty of risks lurking, including the disconnect in consumer spending and income.

Tim Duy observes a “nagging” divergence in consumer confidence vs. consumer spending:

While confidence is at recession levels, real personal consumption expenditures continue to grow at a reasonable clip. Should confidence numbers be totally dismissed, or do they signal an underlying fragility among households that should not be ignored? Some hints at an answer may be found in the September income and spending report. Notably, real personal disposable income looks to have rolled over

Last month I noted the fading in the year-over-year change in personal income in the September data, pointing to this chart:

Duy adds that the higher consumer spending appears to be funded at the expense of a falling household savings rate. “It looks like households are struggling to hold onto the even meager spending gains achieved since the recession ended, and that struggle may be what is reflected in the consumer confidence numbers,” he writes. “Overall, this suggests to me that consumer spending is much more fragile than commonly believed.”
The optimistic outlook is that the continued growth in the labor market will keep consumption bubbling. That argument carries a bit more weight after yesterday’s news from the Federal Reserve that consumer borrowing revived in September after slumping in August. Meanwhile, American Express anticipates that holiday shoppers will spend 17% more this year.
The job market and consumer spending are tightly linked over the medium and long run. In the short term, well, stuff happens. For the moment, both seem to be in a mildly positive trend. The question is whether the falling pace of consumer income is poised to disrupt this virtuous cycle?