Today’s income and spending report for September takes the shine off of yesterday’s glowing GDP news. A closer look at what unfolded in the third quarter has now arrived in terms of the impact on consumer sentiment and the ongoing pain from the labor market. The upward momentum that was all the rage in August, which provided potent aid in the bullish Q3 GDP trend, took a turn for the worse in last month of the quarter. The fear is that the negative sentiment will roll on into the final months of the year.
The government today reports that real disposable personal income retreated by 0.1% last month and personal consumption expenditures tumbled 0.6%. We noted yesterday that the Q3 GDP report, encouraging though it is, would be succeeded by a war for growth and today’s numbers only bolster the forecast.
On the income side, we can sum up the challenge with the news that government payments were the only positive contribution to employee compensation in September. No wonder, then, that spending momentum is fading as the government’s stimulus efforts recede. Consumer spending isn’t necessarily headed for a persistent decline, but neither can we assume that it’s set to regain territory lost over the past year.