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First Cut: Personal income and spending rise modestly in September, PCE deflator down a tenth

Data on personal income in September were up 0.3%, although wages and salaries were flat. Gains were in supplements to wages and salaries (up 0.2%), and  personal interest income (up 1.1%) and personal dividend income (up 0.5%). September was the end of quarter and there may have been payouts of bonuses or incentive pay, as well as on investments.

Personal consumption expenditures were up 0.2% in September from August. A dip of 0.1% in spending on nondurables was probably due to declines in gasoline prices. Spending on durables was rising fairly steadily at up 0.4% for September. Services spending edged up 0.2%, although it seems to be on a slowing trend in recent months.

The PCE deflator — the FOMC’s preferred measure of employment — was up 1.3% compared to a year ago and the core PCE deflator was up 1.7%. Both were down a tenth from the prior report. A shift of a tenth from one month’s report to another is not significant. What is disappointing — and was noted by Chair Jerome Powell in his October 30 press briefing — is that inflation is moribund at low levels even after showing signs of a rising somewhat in recent months. The past three cuts in short-term rates by the FOMC have in part been intended to address prolonged low inflation. The lagged effects of monetary policy mean it may not be evident if the cuts in interest rates have helped and it may be another month or two before anything is definitive.

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