Today’s income and spending report for September takes the shine off of yesterday’s glowing GDP news. A closer look at what unfolded in the third quarter has now arrived in terms of the impact on consumer sentiment and the ongoing pain from the labor market. The upward momentum that was all the rage in August, which provided potent aid in the bullish Q3 GDP trend, took a turn for the worse in last month of the quarter. The fear is that the negative sentiment will roll on into the final months of the year.
The government today reports that real disposable personal income retreated by 0.1% last month and personal consumption expenditures tumbled 0.6%. We noted yesterday that the Q3 GDP report, encouraging though it is, would be succeeded by a war for growth and today’s numbers only bolster the forecast.
On the income side, we can sum up the challenge with the news that government payments were the only positive contribution to employee compensation in September. No wonder, then, that spending momentum is fading as the government’s stimulus efforts recede. Consumer spending isn’t necessarily headed for a persistent decline, but neither can we assume that it’s set to regain territory lost over the past year.
Yesterday’s GDP news, which revealed that consumer spending was up by a healthy 3.4% in the third quarter, sparked a wave of commentary in favor of the idea that Joe Sixpack had returned to his old habits. But today’s income and spending report, which offers a more granular look at the third quarter, suggests otherwise. The gains in August, driven by government stimulus, have given way to the somewhat more sobering reality of September.
“The consumer went out spending in August, but once that incentive [from government stimulus programs] was taken away they didn’t have the same reason to spend as much,” Jonathan Basile, an economist at Credit Suisse, tells Bloomberg News.
It was always naïve to think that consumer spending, which represents some 70% of U.S. GDP, would snapback quickly. There’s a price to pay for the crisis of the past year in terms of trips to the mall. It’s been tempting to think that the full sacrifice that will be meted out in consumer land is behind us. In fact, quite a bit of the blowback may still be in front of us.