In absolute terms, personal income and spending for September didn’t change all that much from August. But little things sometimes mean a lot at a point when the debate is still fierce about whether the economy’s headed for recession or just a slower rate of growth.
On that note, the bulls will find something to chew on with the latest trend in personal income, which rose 0.5% in September, up from 0.4% previously. September’s income rise was the fastest since June, the government reported.
But while Joe Sixpack’s earning more in recent months, his spending ways are falling behind in relative terms, or so the this morning’s release documents. Personal consumption expenditures edged higher by just 0.1%–the lowest since November 2005.

If the trend of slower spending relative to income has legs, the economy may weaken further. As most readers know, consumer spending represents about 70% of gross domestic product. The lesson: there’s no growth of magnitude without Joe’s full faith and compliance.
It’s an open debate as to why Joe’s becoming increasingly thrifty of late, or even if it’ll last. Perhaps he’s been reading the news and analysis that warns of a consumer crackup by way of deteriorating household finances.
But even if Joe’s tilting marginally (emphasis on marginally) toward thrift of late, it’s important to maintain perspective. Indeed, the biggest portion of personal consumption expenditures (60%) is tied to services. Unlike purchases of durable and non-durable goods (which account for the remaining 40% of consumer spending), services spending is less prone to cyclical passions of the moment, or so economists advise. If so, there’s reason to find the trend in services-related spending encouraging, if only slightly.
Personal consumption expenditures advanced by 0.5% last month, matching the monthly rise for August. The 0.5% rate is the fastest since May; it’s also middling: 0.5% has been the average 12-month rate of increase for services-related PCEs for some time.
Meanwhile, the PCE measure of core inflation inched down a notch last month, rising 2.4% in September, or slightly less than 2.5% in August. The generous interpretation is that inflation’s threat has peaked, thereby leaving the Federal Reserve more opportunity to lower interest rates and convince Joe to elevate spending once more.
Overall, there’s room to be optimistic, sort of. That’s another way of saying that there’s room to be pessimistic. It’s a new week with the same old debate.