U.S. Personal Spending Up 0.8% in September

Author: RBC Financial Group Economics Department
Location: Toronto
Date: 2012-10-29

  • US personal spending rose a stronger than expected 0.8% in September 2012 following 0.5% and 0.4% increases in August and July, respectively. Market expectations were for a 0.6% gain in September.
  • Personal income rose 0.4% in September, which was in line with market expectations. With spending growth outpacing income growth in the month, the saving rate slipped to 3.3% from 3.7% in August.
  • In volume terms, personal consumer expenditure (PCE) rose 0.4%, thereby building on a 0.1% gain in August and a downwardly revised 0.3% (was 0.4%) increase in July.
  • Today’s report provides the monthly detail behind the 2.0% annualized increase in real consumer spending reported in the advance third-quarter 2012 GDP report last Friday. The increase in spending in September left the level of real consumer spending in the month 1.3% above its third-quarter 2012 average, thereby pointing to respectable momentum entering the fourth quarter of 2012. Along with early indications that auto sales remained solid in October, this remains consistent with our expectation that consumer spending in the fourth quarter will improve modestly on the 2.0% gain in the third quarter of 2012, which would be in line with our current forecast for a 2.6% gain in the quarter.

 

Personal consumer expenditure (PCE) rose a stronger than expected 0.8% in September, thereby building on 0.5% and 0.4% increases in August and July, respectively. Spending on durables jumped a solid 1.1% and reflected the earlier released 2.8% jump in unit auto sales in September. Spending on services rose 0.4% following an unchanged reading in August. Spending on non-durable goods surged by 1.7% for a second consecutive month in September, thereby matching the gain recorded in August. As was the case in August, much of the gain in nominal spending on non-durables was a result of rising gasoline prices. With that said, excluding the effect of prices, real non-durable sales still rose by 0.5% following a 0.4% August gain. In all, the volume of PCE rose a relatively solid 0.4% following 0.1% and 0.3% gains in August and July, respectively.

Personal income rose 0.4% in September, which was up from 0.1% and 0.2% gains in August and July, respectively. The gain in overall personal income was matched by a 0.4% gain in disposable income. With spending growth outpacing disposable income growth in the month, the saving rate dipped to 3.3% in September from 3.7% in August.

On the inflation front, the core PCE measure inched up 0.1% for a third consecutive month in September. The modest monthly gain left the year-over-year rate little changed at 1.7%, which was up slightly from 1.6% in August.

Today’s report provides the monthly detail behind the 2.0% annualized increase in real PCE reported in the advance third-quarter 2012 GDP report. That increase in consumer spending marked acceleration from the 1.5% increase in the second quarter of 2012 and was a significant contributor to the acceleration in overall GDP growth to a 2.0% rate from a 1.3% second-quarter 2012 increase. Uncertainty about the effect of the looming ‘fiscal cliff’ appears to have weighed on business investment in recent months; however, consumers, to this point, do not appear to have been affected to the same extent. The increase in spending in September leaves the level of real consumer spending in the month 1.3% above its third-quarter 2012 average, thereby pointing to respectable momentum entering the fourth quarter of 2012. Along with early indications that auto sales remained solid in October (RBC expects a monthly sales reading of 15.0 million at a seasonally adjusted annualized rate in the month), this remains consistent with our expectation that consumer spending in the fourth quarter of 2012 will improve modestly on the 2.0% gain in the third quarter of 2012, which would be in line with our current forecast for a 2.6% gain in the quarter.

Information contained in this report has been prepared by the Economics Department of RBC Financial Group based on information obtained from sources considered to be reliable. While every effort has been made to ensure accuracy and completeness, RBC Financial Group makes no such representation or warranty, express or implied. This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy securities.

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