US Consumption Declined In September

Today’s US personal spending and income report for September fell short of projections. Economists overall were looking for a 0.3% rise in the headline income number, but the actual data showed a lesser 0.2% increase last month. Consumption fared worse, retreating by 0.2% vs. the 0.1% gain that the crowd anticipated via the consensus forecast according to It’s fair to say that September was soft for S&I, but the comparisons look a bit brighter when we minimize the short-term noise and focus on the year-over-year trend. In fact, private-sector wages continue to expand at a robust annual pace. That doesn’t change the fact that the monthly data stumbled in September, but the big-picture analysis still leaves room for optimism.

Let’s start with personal consumption expenditures (PCE). Although the annual gain dipped last month to +3.5% — the slowest pace since February — the current rate of increase looks only slightly below average relative to the year-over-year data we’ve seen so far this year.


Turning to disposable personal income (DPI), here too the annual increase decelerated, albeit mildly so. DPI increased 3.9% last month vs. the year-earlier level, down from 4.2% through August. In other words, DPI increased last month at the slowest rate since April, although that just about matches the trend relative to the annual numbers to date for 2014.

The latest figures bring a bit of Halloween gloom to the macro profile for the US, but the foundation for spending and income—private-sector wages—barely budged in annual terms. Wages increased 5.9% through September vs. a year ago. That’s a fractionally slower gain vs. the annual rate through August. In other words, private-sector wages are still rising at close to strongest rate posted in the last two years. If this critical slice of the data starts to show weakness going forward, we’ll have reason to worry. For the moment, however, the trend in wage growth appears to be holding up.

True, monthly wages slowed to a sluggish 0.2% increase last month, the lowest since April. But considering the upbeat macro numbers overall in the latest round of updates, including encouraging figures for payrolls and a better-than-expected Q3 GDP report, it’s premature to assume that the outlook for spending and income is under the spell of witches and warlocks. Perhaps incoming data in the days and weeks ahead may tell us otherwise, but for the moment it’s reasonable to assume that today’s wobble is short-term noise in the delicate art/science of analyzing the business cycle.

“The decline [in spending] was on the heels of a pretty outsized gain in August so some payback should have been expected,” notes Tom Porcelli, chief U.S. economist at RBC Capital Markets via Bloomberg, although the size of the reversal was surprising, he adds. “The quarter ended on relatively soft footing from a spending perspective, however consumer fundamentals remain fairly sound.”

Indeed, the relatively robust trend in wage growth suggests that consumers will have the capacity to juice spending as we head into the holiday shopping season. It doesn’t hurt that energy costs are falling. “We expect lower energy prices to be a positive for consumers and look for a pickup in spending growth in the fourth quarter,” John Ryding, chief economist at RDQ Economics, tells Reuters.