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September Spending Growth Outpaces Income

Consumer spending rose $87.9 billion, 0.8 percent, in September, twice the 0.4 percent growth in personal income, $48.1 billion, the ""Bureau of Economic Analysis"":http://bea.gov/newsreleases/national/pi/2012/pdf/pi0912.pdf reported Monday. While the increase in income matched economist expectations, the increase in spending was higher than the forecast.

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The personal savings rate fell to 3.3 percent, the lowest level since last November.

It was the third straight month spending grew faster than income, confirming last Friday's report showing a solid growth in Gross Domestic Product from 1.3 percent in the second quarter to 2.0 percent in the third. At 2.0 percent, the economy is still growing slowly, however.

The monthly income-spending report showed signs of an improving labor market as wages improved $20.8 billion in September, the strongest growth in three months. Most of the wage growth--$16.6 billion--came in the service sector.

Disposable personal income--essentially after-tax income--rose $43.0 billion in September, the strongest [COLUMN_BREAK]

monthly improvement since March, when it grew $55.0 billion.

The month-to-month drop in the personal savings rate was the third month as personal savings itself fell to $395 billion, the lowest level since November. With spending exceeding income, borrowing increased and as a result, despite continuing low interest rates, personal interest payments (non-mortgage interest) rose to $181.5 billion in September from $176.6 in August.

Government transfer payments--Social Security, Medicare, and unemployment insurance--rose $12.7 billion in September after falling $1.8 billion in August. Social Security payments rose $14.0 billion in September due to calendar configuration. Unemployment insurance payment fell $1.8 billion in September, the ninth consecutive month-to-month decline, due to a combination of government cuts and an improving labor market.

The increase in personal consumption was primarily due to higher spending on goods, up $56.6 billion, while spending on services rose $43.1 billion. The increased spending on goods was heavily weighted to non-durable goods, $43.1 billion compared with $13.4 billion for durable goods, suggesting consumers might be reluctant to spend on higher ticket items, which are often financed through borrowing.

The Personal Consumption Expenditure (PCE) Price Index--often considered the Federal Reserve's favored measure of inflation--rose 0.4 points in September, matching August for the sharpest increase of the year, and is up 1.7 for the year, the strongest year-over-year growth since April's 1.9 percent, but within the Fed's target range. The ""core"" PCE Index--excluding food and energy--rose 0.1 points in September as it did in August and was up 1.7 percent in the last year, slightly faster than the August annual increase of 1.6 percent.

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.
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