Daily Forecast Update: Personal Income, Consumer Sentiment

October 30, 2009

By Selma Lewis, Research Economist

Bad news: the consumer sector was weak in September, with both a drop in spending and no change in income, but this was in line with expectations. A drop in spending is largely attributable to ending of the "cash for clunkers" program which pushed spending in July and August. Spending on nondurable goods was up. Personal savings also increased in September.
The savings rate next year could be rising as consumers become cautious about their spending.
Today's data show that although yesterday's GDP number for the third quarter was met with great enthusiasm, there is still some doubt over economy's sustainability after the stimulus fades away.
Good news: Inflation was tame. Also, consumer sentiment at the end of October increased slightly from the middle of the month and was higher than expectations, but still lower than in September.
Although the stock market responded positively to the consumer sentiment news, most of the Americans are still not feeling better, as their wealth is tied to their homes and not the stock market.

Consumer spending took a hit in September. The 0.5 percent drop was largest since last December, however it is mostly due to the drop in durable goods purchases, which was down 7.0 percent from the month before.
Nondurable goods and services were up, 0.7 and 0.2 percent respectively.
Personal income did not change in September, but was down 2.8 percent from last year.
Personal saving as a percentage of disposable personal income was 3.3 percent in September, compared to 2.8% in August.
Prices, excluding food and energy, increased slightly 1.3 percent Y/Y, and 0.1 M/M, but still less than the 1.5 to 2 percent goal set by Fed officials which ensures price stability.

Consumer sentiment by University of Michigan was in line with the consumer confidence (Confidence Board) released earlier this week. The index rose 1.2 points from mid-month to 70.6.
This is nearly 3 points lower than September. The sentiment was similar between the current conditions and future conditions. In contrast, the Board's consumer confidence was very low on the current conditions.

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