Personal Income and Spending Up in October

Washington, DC, November 30, 2006--Consumer spending rose 0.4% in October following two lukewarm months, the Commerce Department reported Thursday.

Personal incomes rose 0.4%, the weakest growth since June, and a tenth lower than expected. However, with prices falling 0.2%, real (inflation-adjusted) after-tax incomes rose 0.6%, the second-best growth in more than a year.

Core inflation rose slightly faster than expected at 0.2%, keeping the year-over-year gain in the core personal consumption expenditure price index at 2.4%, well above the Federal Reserve's implied cap of 2%.

Economists had been expecting core prices to rise just 0.1.

With gasoline prices falling in September and October, overall consumer prices are up 1.5% in the past year, the lowest inflation rate in four years.

Nominal spending increased 0.2 in October, a tick higher than the 0.1% expected. Nominal spending in September was revised lower to negative 0.2% from 0.1%.

Real spending in October was boosted by a 0.7% gain in purchases of nondurable goods. Spending on durable goods increased 0.2% and spending on services increased 0.3%.

With real disposable incomes rising faster than real spending, the personal savings rate improved to negative 0.6%, the highest since March. The savings rate has been negative for 19 consecutive months. The savings rate can be negative if consumers borrow or sell assets to support consumption.
On the income side, employee compensation increased 0.6% for the second straight month. Wages rose 0.6% while supplements such as benefits rose 0.5%.

Proprietors' income increased 0.1% after no growth in September. Income from assets, such as dividends and interest, increased 0.7%.

Personal taxes increased 1.2%.