US Personal Spending and Incomes Rise in September

◾ Personal consumer expenditure (PCE) rose 0.2% in September 2013, thereby meeting market expectations but marking a slowing from the unrevised 0.3% pace in August.
◾ On a volumes basis, personal spending increased by 0.1% in September following an unrevised 0.2% gain in August and a flat reading in July.
◾ Personal income rose 0.5% in September, thereby matching the gain in August and beating market expectations for a 0.3% increase. The savings rate picked up to 4.9% from 4.7% in August.

Nominal PCE rose 0.2% in September 2013, thereby meeting market expectations but marking a slowing from the unrevised 0.3% pace in August. Household spending on non-durable goods led the monthly increase with a 0.6% gain in September, while durable goods consumption fell 1.3% to erase much of the 1.4% increase seen in August. Spending on services rose 0.3% in September, thereby matching the previous month's gain.

On a volumes basis, PCE rose 0.1% in September as increases in real spending on non-durables (0.6%) and services (0.3%) more than offset weakness in spending on durable goods (-1.2%). The PCE deflator rose 0.9% on a year-over-year basis in September, which was down from the 1.1% pace in August. The annual increase in the core PCE deflator was unchanged at 1.2% in September.

Nominal personal income rose 0.5% in September, thereby matching the gain in August and beating market expectations for a 0.3% increase. With income growth outpacing that of spending, the personal savings rate edged up to 4.9% in September from 4.7% in the previous month.

Today's report provided the monthly detail of the 1.5% annualized gain in consumer spending in the third quarter of 2013 as reported in yesterday's national accounts. The moderation in real personal consumption growth in September is slightly disappointing because it leaves spending on a slowing trajectory heading into the fourth quarter. While some weakness in consumer spending in October might have been expected given the hit to confidence from the 16-day government shutdown at the beginning of the month, today's encouraging payroll employment report points to a fairly muted effect. Solid employment gains and faster growth in personal income, along with wealth effects related to an improving housing market, should support strong consumer spending going forward. Thus, we still assume some modest strengthening in fourth quarter of 2013 consumer spending relative to the third quarter.