US: Data reaffirms expectation for a slowing in consumer spending – Wells Fargo

The details of September’s report on personal income and spending are consistent with expectations for a slowing in consumer spending, explained analysts at Wells Fargo. According to them, soft inflation figures mean that the Federal Reserve may not be done cutting interest rates just yet.

Key Quotes: 

“Income growth is solid, but wages and salaries stalled in September, spending is moderating and inflation ended the third quarter on a soft note.”

“Personal income increased 0.3% in September and the previously reported increase of 0.4% in August was revised up to 0.5%. Although the growth rate slowed a bit, the softening at least partly reflects the impact of the United Auto Workers work stoppage, which the BEA estimates to have pulled wages and salaries lower by $1.9 billion.”

“If there is a worrying development on the income side, it is that the drivers of income growth were limited to personal interest income & dividends and income earned by proprietors, while wages and salaries were flat.”

“The headline PCE deflator was unchanged on the month, which took the year-over-year rate down to 1.3%. Similarly, the core PCE deflator was also flat, bringing the year-over-year rate down a tenth to just 1.7%. Due in part to the fact that the inflation rate is having difficulty getting up above 2% on a sustained basis, we think the FOMC will cut rates one more time early next year. After that, as the economy grinds a bit higher later next year, the FOMC will keep rates on hold at 1.25-1.50% for the foreseeable future.”