An hour before the start of the new trading day, investors received—in addition to a separate encouraging report on the labor market—the latest data on personal income and spending for the month of September from the Department of Commerce.
Specifically, the government reported that personal income climbed 0.5% in September, compared with respective increases of 0.2% and 0.5% in July and August. Meanwhile, personal consumption expenditures for the period increased 0.2%, down slightly from the 0.3% advance registered in the preceding month. Overall, it was a decent reading ahead of the fast-approaching holiday shopping season, which depends heavily on consumers opening their wallets, particularly for big-ticket items. This is crucial to the overall health of the U.S. economy, as consumer spending accounts for nearly 70 percent of the nation’s economic output.
The better-than-expected reading for personal income, which has shown modest increases throughout calendar 2013, was likely due to a pickup in employment and better wages and salaries during the month of September. Specifically, private wages and salaries increased by $18.8 billion last month, following a revised increase of $34.8 billion in August. Of note, services-producing industries’ payrolls increased by another $14.3 billion after rising by $27.0 billion in August. This is no doubt a positive sign as we look ahead to the upcoming holiday-shopping season, a period that typically brings a pickup in services and manufacturing activities.
Meantime, as noted, personal consumption expenditures increased by 0.2% in September, which was slightly below the August rate of 0.3%. In dollar terms, personal spending rose by $32.6 billion in September, compared to an increase of $47.7 billion in August. Our sense is that some growing apprehension ahead of the contentious budget and debt-ceiling talks on Capitol Hill may have had a hand in the nominal pullback in spending in September; the subsequent government shutdown is likely to have had an adverse impact in spending in October, as well. One positive, though, ahead of the forthcoming holiday shopping season has been the recent retreat in crude oil and gasoline prices. A pullback in energy costs would likely lead to an increase in disposable income in the coming months, which would be a welcome development for individuals and families who will probably contemplate purchases of big-ticket items during the holiday shopping season. Today’s report showed that disposable personal income increased by 0.5% in September, which, along with the better-than-expected job creation figures in October, could be a boost for spending during the holiday season.
All in all, this report was encouraging and does provide some hope that the consumer will be active during the crucial months that lie ahead for the retail industry.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.