Monday, October 31, 2005

Incomes Rebound Strongly, Spending Remains Healthy, Inflation Modest, Chicago Manufacturing Strong

- Personal Income for September rose 1.7% versus estimates of a .3% increase and a downwardly revised .9% decrease in August.
- Personal Spending for September rose .5% versus estimates of a .5% increase and a .5% decline in August.
- PCE Core for September rose .2% versus estimates of a .1% gain and a .1% increase in August.
- Chicago Purchasing Manager for October rose to 62.9 versus estimates of 57.4 and a reading of 60.5 in September.
BOTTOM LINE: US consumer spending rose in September and incomes rebounded after plunging in August because of uninsured losses from Hurricane Katrina, Bloomberg reported. The 2.0%(YoY) rise in the PCE core, the Fed’s favorite inflation gauge, was within their forecast at the beginning of the year of a 1.75%-2.0% increase. Excluding the effects of the hurricanes, personal income rose .5% in September versus a .3% increase in August. Moreover, American incomes rose 6.3%(Year-over-Year) in September, about twice the rate of most inflation readings. I expect income growth to decelerate and spending to remain strong into year-end as economic growth slows to average rates and energy price declines accelerate.

An index of Chicago-area business activity unexpectedly rose this month adding to evidence that the US economy snapped back after Hurricane Katrina and Rita, Bloomberg reported. The backlog component of the index surged to the highest in a year. The new orders component spiked to 72.6, the highest since March, from 68.3 in September. As well, the prices paid component rose to 79.6 from 76.3 in September. Finally, the employment component of the index rose to 51.3 from 48.4 last month. I continue to believe manufacturing will add to economic growth over the next few months on inventory rebuilding spurred by more confidence in US economic growth.

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