October 30, 2017 – Consumer spending, measured by Personal Consumption Expenditures (PCE), makes up approximately two-thirds of the economy and is a direct measure of purchasing activity. We see where consumers are spending their dollars, whether it be durable and nondurable goods, or on services. Changes in the personal income level dictate consumer spending.
Personal income bumped up 0.4% in September, in line with expectations. Consumer spending increased 1.0% for the month from the previous month’s 0.1% increase. Wages and salaries experienced a 0.4% gain in September. The PCE index stayed in line with expectations, with a 0.4% increase in PCE and a 0.1% increase in core PCE (excluding food and energy). PCE is up 1.6% year-over-year and core PCE is up 1.3% over the last year.
The bump in wages and salaries in September is linked to the increase in consumer spending this month. A boost in spending signals consumers are confident with their income and are putting money into the economy. A part of the increase in spending can be attributed to the hurricanes that hit the southern states in September. Communities that were impacted by the storms might have held off on saving and spent that excess money to replace the goods they lost. By putting extra money earned into the economy, consumers boost economic growth and GDP through spending. Year-over-year PCE is up 1.6% reaching closer to the Fed’s target goal of 2%.