Personal Income Holds On, Spending Plummets

Daily Forex Fundamentals | Written by Wachovia Corporation | Nov 26 08 14:45 GMT |

Personal income rose a larger-than-expected 0.3 percent in October, despite a rapidly weakening labor market. While income held up, spending virtually crashed, declining 1.0 percent on the month—the largest decline since the aftermath of September 11th. This sets up an extremely weak fourth quarter for spending and GDP. Income Up & Inflation Moves Out of the Way Income climbed 0.3 percent in October, but the trend in income growth is clearly lower from here. With a weakening job market we believe real disposable income growth will slow to zero in the first quarter of next year. Core inflation continues to slow and is now just above the Fed's perceived target range at 2.1 percent. Spending Dropped Sharply Real spending has been falling for five straight months as consumers pulled back in the face of weaker economic growth and less access to credit. We expect spending to fall at almost a four percent pace in the fourth quarter. Even spending on services, which is normally more resilient, fell over the last three months for the first time since 1991. Wachovia Corporation http://www.wachovia.com Disclaimer: The information and opinions herein are for general information use only. Wachovia Corporation and its affiliates, including Wachovia Bank, N.A., do not guarantee their accuracy or completeness, nor does Wachovia Corporation or any of its affiliates, including Wachovia Bank, N.A., assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or any foreign exchange transaction, or as personalized investment advice. Securities and foreign exchange transactions are not FDIC-insured, are not bank-guaranteed, and may lose value.