Household Incomes and Spending Jump Higher, Beating Forecasts

US President Donald Trump gestures during a Keep America Great Rally at Kellogg Arena December 18, 2019, in Battle Creek, Michigan. (Photo by Brendan Smialowski / AFP) (Photo by BRENDAN SMIALOWSKI/AFP via Getty Images)

U.S. consumer spending and household incomes both rose more than expected in September, helping the economy recover from the pandemic induced downturn faster than expected.

The Commerce Department said Friday that household spending on goods and services rose 1.4 percent last month on a seasonally adjusted annualized basis, the fifth consecutive monthly increase. Economists had expected spending would rise by 1 percent, repeating August’s gain.

Household incomes rose nine-tenths of a percent, boosted by higher wages in the private sector. Economists had expected income to rise by a milder three-tenths.

The government’s contribution to the economy fell, making the rise in income even more surprising. Government wages and salaries fell half a percentage point. Unemployment insurance payments fell 42 percent compared with August as the federal enhancement to jobless benefits was reduced and many Americans returned to work. Unemployment insurance payments are down 72 percent since their peak in June.

Overall private sector wages and salaries rose by a little more than one percent. Compared with February, prior to the pandemic’s impact on the economy, wages are down 3 percent. Compared with April, when lockdowns were at their tightet, they are up 10 percent.

Wages and salaries in the services sector rose 1.2 percent. These still remain 2.7 percent below their pre-pandemic February level. But compared with the depths of the lockdown, they are up 10.2 percent.

Wages in goods producing jobs rose two-tenths. They are down 4.4 percent from February’s level and up 10.9 percent compared with April’s.

Even with the gains over the last five months, personal consumption expenditures—a measure of household spending on goods and services—are still 2 percent lower than the February level. But compared with the depths of the pandemic lockdown, spending is up over 20 percent.

Spending on goods rose 2 percent compared with August.  Consumers spent significantly more on clothing and footwear as well as cars and trucks. Compared with February, goods spending up 7.7 percent. Spending on durable goods, those expected to last three years or more, is up 15.5 percent compared with February and rose nearly 3 percent in September alone.

Spending on services climbed 1.1 percent. The largest contributors to the increase were spending for health care, particularly outpatient services, and “recreation services”— led by  spending on gym memberships, sports centers, parks, theaters, and museums. This sector is, however, still reeling. Services spending is still down 6.3 percent from pre-pandemic level. Compared with April, spending is up 17.5 percent.

The personal savings rate, which measures the amount of disposable income over spending, was 14.5 percent, the higher than any month prior to the pandemic after 1975. The saving rate hit 33 percent in April, the highest ever, as the U.S. economy was largely locked down and people encouraged to remain at home to stem the rate of virus infections.

The gains in income were not consumed by inflation. The personal consumption expenditure price index, a measure of inflation, rose just two-tenths of a percentage point in September. Core inflation, which excludes food and fuel costs, rose by the same amount. Compared with a year ago, the PCE price index is up 1.4 percent and core PCE prices are up 1.5 percent, both well below the Federal Reserve’s two percent target.




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