Personal Income and Spending Suggest Pressure on the Economy
The investment community received another key economic report this morning when the U.S. government reported data on personal income and spending for the month of October. The report, which was to provide a good barometer of how the U.S. consumer is feeling as the all-important holiday shopping season heats up, was particularly disappointing.
Specifically, the government reported that personal income was flat in October, compared to a 0.4% increase in September and a 0.1% reading in August. Meantime, personal consumption expenditures for the period decreased 0.2%, a considerable month-to-month drop from the 0.8% advance registered in September. If these trends were to persist over the final few months of this year, it would likely be a huge hit for an economy that is growing at a rather pedestrian pace right now anyway. The all-important consumer sector—which accounts for roughly two-thirds of the nation’s economic output—is being counted on heavily to keep the economy moving forward in the months ahead, especially with manufacturing activity lackluster, at best, right now. (Note: We will get more clarity next Monday on the U.S. manufacturing sector when the Institute for Supply Management releases data for the month of November.)
Even more disheartening is that personal income and outlays for November is likely to reflect more significantly the devastating effects of Hurricane Sandy, which made landfall on the East Coast of the United States at the tail end of October. The government noted that the storm affected 24 states, with the most severe damage taking place in New York and New Jersey, two areas that account for a considerable portion of the nation’s personal income and expenditures. Our sense is that the there was further erosion in these two metrics this month due to the impact of the aforementioned storm.
All in all, this far-from-uplifting report, especially when considering that real disposable income, which is often used by the consumer on big-ticket purchases during the Christmas season, was down 0.1% last month. It raises the question as to just how much money the consumer is likely to have at its disposal over the next four weeks. In fact, real personal income expenditures decreased 0.3% in October after increasing 0.4% in the prior month, which is not a great sign as the consumer contemplates how many gift items he/she expects to purchase in during the holiday season.