EconoFACTS

November 30, 2023 | 09:33

PCE Inflation Flat as Personal Income and Spending Slow in October

Economist

Chief U.S. Economist and Managing Director
Economics

Scott Anderson is BMO’s Chief U.S. Economist and Managing Director. He analyzes and forecasts U.S. national and ... (Read more)

Scott Anderson , Ph.D.

Chief U.S. Economist and Managing Director
Economics

Scott Anderson is BMO’s Chief U.S. Economist and Managing Director. He analyzes and forecasts U.S. national and ... (Read more)

We received a welcome moderation in headline and core PCE inflation for October this morning. PCE inflation was virtually flat last month, increasing less than 0.1% and below consensus expectations. This breaks a string of two consecutive months of 0.4% increases. A decline in energy prices and a more price-sensitive consumer were behind the sharp moderation. From a year ago, inflation slipped to a more tolerable 3.0% in October from 3.4% in September. Core PCE inflation also moderated in line with expectations to 0.2% from 0.3% in September, bring the year-on-year rate down to 3.5% from 3.7%. Core services excluding housing slowed to +3.9% y/y, from +4.3% y/y in September.

Personal income growth moderated to 0.2% in October from an upwardly revised 0.4% in September as a decline in hours worked and slower compensation growth took a toll. Disposable personal income increased 0.3% in October, down from a 0.4% pace in August and September. However, because of the lack of inflation last month, real disposable incomes rose 0.3% after four consecutive months of no growth and declines. That could help support continued real consumer spending growth in the months ahead.

Personal spending growth slipped to 0.2% in October from September’s torrid 0.7% gain. Spending on services remained solid, while spending on goods declined. The largest contributors to the services gains came from health care, housing and utilities, and international travel. Consumer appetite for durable goods and other goods waned last month, especially for motor vehicles and parts, gasoline, and other energy goods. The personal savings rate increased to 3.8% in October, as spending cooled, but is down sharply from 5.3% in May.

Bottom line: There are signs consumers are becoming a bit choosier and price conscious, but no major pull-back in consumer spending that would signal an impending recession. The markets and the Fed should cheer this report as it points to the current restrictive monetary policy having its intended effect on inflation, while also raising the chance of a soft-landing scenario.

Table 1 - United States — Personal Income and Consumption

(month/month % change)

Source: BMO Economics, Haver Analytics