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October 30, 2017 | Consumers Tap Savings to Spend at Fastest Pace Since 2009: Real Income Drops, Core Inflation Slight

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
In the wake of the hurricanes, consumers tapped savings to spend at the fastest paces since August 2009. Core PCE inflation (not counting food and energy) was 0.1% but overall PCE inflation was 0.4%. The savings rate is the lowest since 2008.

The BEA’s Personal Income and Outlays report for September shows:

  • Personal income increased $66.9 billion (0.4 percent)
  • Disposable personal income (DPI) increased $53.0 billion (0.4 percent)
  • Personal consumption expenditures (PCE) increased $136.0 billion (1.0 percent).
  • Real DPI decreased less than 0.1 percent.
  • Real PCE increased 0.6 percent.
  • The PCE price index increased 0.4 percent
  • The core PCE index which excludes food and energy increased 0.1 percent.

The above data was reflected in the GDP report on Friday.

Savings Rate Declines

Households dipped into their savings to fund purchases last month, pushing savings to their lowest level since 2008.

“Relying on consumer savings to move the economy forward is not going to last for long,” said Chris Rupkey, chief economist at MUFG in New York.

Core PCE, the Fed’s prefered measure of inflation, rose a mere 0.1% for the fifth consecutive month. Core PCE has underperformed the Fed’s target for over five years.

Mike “Mish” Shedlock

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October 30th, 2017

Posted In: Mish Talk

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