US: Spending growth slows down in October but remains strong - Wells Fargo

Personal income increased 0.4% in October, just in time for the holidays point out analysts at Wells Fargo. They note that spending growth slowed down but remained strong, up 0.3%, after a downwardly revised increase of 0.9% in September. 

Key Quotes: 

“After a recent relatively long spell of weak income growth, the October release of personal income pointing to, perhaps, an improving path for income growth is a refreshing sign. Of course, a month does not make a trend, so we remain cautiously optimistic regarding the last two months of the year. Furthermore, we believe that income growth has to continue to improve for the right reasons in the next several quarters due to the still strong showing from the labor market.”

“Nominal disposable personal income was up 0.5 percent in October while real disposable personal income was up 0.3 percent, a notable improvement after a sequence of -0.1 percent, 0.1 percent, -0.1 percent, and 0.0 percent, during the June-September period, respectively. October marks the highest monthly rate since May of this year.”

“It is clear that income is still constrained and our expectation that income is going to start increasing has not yet materialized. Thus, we remain cautiously optimistic for the holiday season.”

“On the spending side, we were expecting some weakness because of the strong showing in September. Personal spending increased 0.3 percent in nominal terms but only 0.1 percent in real terms after increases of 0.9 percent and 0.5 percent, respectively in September.”

“This may indicate trouble ahead for consumption during the last quarter of the year; however, we believe that conditions remain positive for a strong showing in consumer demand during the final quarter. Positive conditions are supported by the strong showing in consumer confidence, a very strong labor market, this past month’s improvement in real disposable income, plus the slight improvement in the savings rate. Thus, we are still positive on the spending picture going into the holiday sales season.”