New data show that personal spending growth, which contributes more than two-thirds of U.S. GDP, continues to grow, but personal income has fallen more than expected and the savings rate has been falling for six months.
On Wednesday, the U.S. Department of Commerce announced that U.S. personal consumption expenditures (PCE) rose 0.5% in October from a year earlier, much lower than the adjusted growth rate of 1.2% revised downward from 1.4% in September, the lowest growth rate in six months, but better than market expectations for growth of 0.4%, for the sixth consecutive month of month-on-month growth. October U.S. personal income fell 0.7% from a year earlier, while the market was expected to fall 0.1% or zero growth The September growth rate was revised down to 0.7% from 0.9%.
The Fed’s preferred inflation gauge, the PCE price index and the core PCE price index, increased by 1.2% and 1.4% year-over-year in October, in line with market expectations, and by 1.4% and 1.5% respectively in September. The Fed’s symmetric inflation target is 2%.
Commentary suggests that U.S. consumer spending rose steadily in October, but the growth momentum may be slowing as the neo-crown epidemic spreads rapidly and millions of unemployed Americans lose their weekly unemployment benefits, putting pressure on them to reduce their incomes.
With personal incomes shrinking sharply because the stimulus funds passed in the U.S. this spring to fight the epidemic are running out, how will U.S. households sustain spending growth once the government’s financial support runs out? So naturally, it’s time to tap into savings.
According to data released Wednesday by the Commerce Department, the personal savings rate, which reflects the ratio of personal savings to disposable income, was 13.6 percent in October, down 1 percentage point from September, and has been falling for six months, 20 percentage points below the record high set in April.
The problem is that, at the current rate of decline, the savings rate will fall back to “normal” levels by the first quarter of next year. Last week, JPMorgan Chase predicted that U.S. GDP will fall by 1% in the first quarter of next year, after growing 2.8% in the fourth quarter of this year. If this forecast is accurate, savings will provide little safety net for consumer spending, an important component of GDP, in a quarter when the U.S. economy is in a double-dip recession.
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