–Pvt Wages -$17.1b on Hurricane Effect; Core Prices +0.1%/+1.6% YOY

By Joseph Plocek

WASHINGTON (MNI) – The U.S. October Personal Income report was
dismal, primarily as a result of the hurricane effect, but suggesting
that Q4 GDP is off to a very slow start.

October Personal Income printed flat, PCE -0.2%, and Core PCE
prices +0.1% for +1.6% over the year, all worse than expected. But
the Commerce Department said this “reflects the effects of Hurricane
Sandy” though the true effects cannot be quantified. That is because the
impact of the storm is embedded in the source data and could not be

The hurricane made landfall on October 29, so its monthly impact
was spread over only a few days.

The PCE drop puts real PCE at -0.3% in its biggest drop since the
recession-impacted reading in September 2009. This is a poor start to
the quarter, and reflects drops in both durables and nondurables goods
and services.

A primary cause of reduced spending was the reduction in incomes
from time lost at work. Private wages fell $17.1 billion in October.

The Commerce Department estimated $18.2 billion in wages were lost
from Sandy, so excluding storm effects the number would have been
slightly higher (levels changed due to Q2 updates). In contrast private
wages and salaries were up $22.4 billion in September. In October both
goods and services payrolls decreased.

Rents and receipts on assets were up; transfers printed -$6.7
billion and proprietors’ income -$2.1 billion. Also, new Q2 estimates
based on quarterly unemployment records lowered incomes.

Nevertheless, spending was weak in October. And weak November
retail sales data suggest spending decelerated again. The -0.2% PCE
result was equaled in May, but declines in spending are more often
associated with economic downturns.

Savings rose slightly, putting the saving rate at 3.4% after 3.3%
in September, another reason spending lagged. Savings has been trending
lower as the year progresses, the same pattern seen in 2010.

**Market News International Washington Bureau: (202)371-2121**