Income Climbs Slightly in September

Oct. 30, 2006 — -- According to a government report released this morning, Americans made more in September but made their best efforts to keep spending in check.

The Bureau of Economic Analysis says that personal incomes grew by 0.5 percent last month, while personal spending ticked up just 0.1 percent. Both numbers were in line with economist expectations.

The spending figure is the smallest monthly increase in spending in 10 months, with details showing a continued appetite for spending on big-ticket items like cars and appliances but a cutback on food and clothing.

The nation's personal savings rate was a negative 0.2 percent during September. That's the 18th month of negative savings for the United States -- proof that our consumer culture is encouraging people to borrow from their savings -- and credit cards and home equity -- to buy the things they want.

The top line numbers here are an indication that the economic slowdown might be reaching its low point in the coming months. Personal incomes are a good indicator of future spending, so if history proves a capable guide, retail spending might be headed up in the next few months leading into the holiday season.

It's also important to note that the Federal Reserve System's "favorite" inflation gauge is hidden in this report. The "core" price index of personal consumption expenditures shows that prices went up by about 2.4 percent in the year prior to September.

That's slightly less than the reading for August and a reassuring -- if indeterminate -- sign for the governors, who have been on inflation watch during the last few years. The data is above the Fed's presumed "comfort zone" (the Fed generally prefers for a core PCE rate of 1 to 2 percent), but it still supports a continued pause for interest-rate moves.