–PCE +0.4%, as Pvt Wages +$33.2 bln; Ex-transport Orders -2.7%

By Joseph Plocek

WASHINGTON (MNI) – The Commerce Department’s Wednesday economic
data were somewhat offsetting, with October income and spending rising,
perhaps in a continuation of the recent monthly seesaw as the consumer
sector advanced, while orders plunged, suggesting the business sector
will stall.

The October personal income report showed income up 0.5%,
Personal Consumption Expenditures at +0.4%, and core PCE prices
flat for +0.9% over the year.

Real PCE advanced 0.3% in a decent start to Q4, though services
spending was flat after printing +0.1% in September. It is unclear why
services are suddenly being cut back, but there could be retrenchment in
luxuries or other items as consumers adjust to slow wage gains. It is
also possible that warm Fall weather is cutting utilities spending.

Private wages advanced $33.2 billion after +$8.0 billion in
September, as services wages jumped (in another contradiction to the
slow spending in this sector). Proprietors’ income, wage supplements,
rents, personal income receipts, and transfers gained.

Personal income was revised for April to September based on newly
processed income tax data. August and September income was revised
higher as a result, and spending was revised up in September, giving Q4
a higher base.

Most of the spending was in durables, which advanced 2.2%. Motor
vehicles and parts accounted for most of the durables gains in September
and October. Nondurables spending snapped back to +0.2% from -0.2% in
September.

The monthly savings rate was 5.7%, after spiking in the summer. The
rate this year was as high as 6.3% in June, so recently lower savings
rates suggests that spending came at the expense of shoring up the
consumer’s balance sheet.

Key to Q4 remains how consumption shapes up over the holiday
spending season. Reports so far indicate the spending season will get an
early start but that consumers will await bargains before purchasing.

In a separate report, October durable goods orders were marked
down 3.3%, indicating they are now down in two of the last three
months. Ex-transport orders printed -2.7% and ex-defense -2.1%.

There was widespread weakness: primary metals orders posted -0.8%,
machinery -3.9%, computers -2.3%, and electronics -3.4%. Civilian
aircraft orders posted -4.4%. Motor vehicles posted -0.7%.

Nondefense capital goods shipments fell 0.6%, suggesting weak
business spending on equipment. Nondefense capital goods orders ex
aircraft printed -4.5%, its biggest drop since -5.3% in July.

Shipments printed -0.9% overall, and inventories +0.4%, showing the
beginnings of overhang.

Durables was a very weak report, and the result was far worse than
the expectation of -0.1% orders. The factory sector evidently was in far
worse shape than the consumer at the start of Q4.

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

[TOPICS: MAUDS$,M$U$$$,MT$$$$,MAUDR$]