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Personal consumption expenditures fell 1% in October — about as much as expected but the biggest drop since Sep-01. That followed an unrevised 0.3% drop in September.

Personal income rose 0.3%, above forecasts and after an upwardly revised 0.1% gain in September.

The October core PCE price index came in unchanged — slightly higher than expected — after adding an unrevised 0.2% the month before. In line with forecasts, y-o-y headline PCE price growth eased to 3.2% from 4.1% prior. Y-o-Y core inflation was 2.1%, down from 2.3% prior.

• October Personal Income is expected to be unchanged following a 0.2% increase in September
• Personal Spending is expected to drop a hefty 1.1% following a 0.3% decline prior
• Core PCE is expected to fall 0.1% following a 0.2% increase in September

October Personal Income is expected to improve modestly for a third consecutive month; however aggregate income data from the October Employment report was flat, indicating a weak month for income growth. On the bright sight, declines in real personal income should be limited given the further easing of inflationary pressures over the period. Disposable Income will struggle to post a positive result as both widespread belt-tightening and economic uncertainty are likely to eat up a significant portion of what may be considered disposable income.

October Personal Spending is expected to fall a hefty 1.1%, as a considerable pullback in spending in the near-financial market collapse last month that’s already been evident in the data. October Retail Sales fell by a record 2.8%, while October Vehicle sales dropped 15% to a new record low. The manufacturing sector experienced heightened deterioration in October, posing significant downside risk to durable goods sales data (which already posted a sizeable 3.1% decline in September). The October ISM manufacturing report provides a frightening glimpse of the intensified downward pressure gripping the US economy.

Related data:

ISM Manufacturing Index: 38.9 vs. 43.5

• Production Index: 34.1 vs. 40.8 prior
• Prices Paid Index: 37 vs. 53.5 prior
• Backlog Index: 29.5 vs. 35 prior
• New Orders Index: 32.2 vs. 38.8 prior
• Supplier Deliveries Index: 49.2 vs. 52.5 prior

September Core PCE was up 0.2% versus an unrevised 0.2% gain in August and against a 0.1% consensus estimate. Year on Year, PCE was up 4.2%, unchanged from the August reading.

Personal Income was up 0.2% against a downwardly revised 0.4% gain in August and Personal Consumption Expenditures fell 0.3% versus an upwardly revised 0.1% in August. PCE, at -0.3, is the first spending contraction in 2 years and was the largest drop since June of 2004 when it was down 0.4%.

Disposable Personal Income at 0.2%, was up for the first time in 3 months and the Personal Savings rate jumped to 1.3% versus a downwardly revised .2% in August.

Commerce points out that the August 2008 Personal Savings level was the smallest since April 2008 as was the savings rate of 0.8%. The Stimulus package increased the Savings rate to 5% in May but the rate has been falling since.

The 0.8% decrease in Personal Income in July was the biggest decrease since August 2005 when it fell 2.3% and the 0.6% decrease in Real PCE was the largest decrease since June 2004 when it was down 0.7%.

Overall the PCE data shows the extremely limited impact of the Stimulus Package over the Summer but some steadying of the data in September.

August Personal Income increased 0.5%, better than the 0.2% expected and following an upwardly revised 0.6% decline in July. Disposable income fell 0.9% in August following a upwardly revised 0.8% decline in July. The Bureau of Economic Analysis points out that the recent pattern of changes in income reflects a wind-down in the economic stimulus package.

August Personal Spending was flat at 0%, lower than the 0.2% increase expected and following a downwardly revised 0.1% increase in July. Real PCE was also unchanged in August after a 0.5% decrease in July. The PCE Price Index was unchanged in August following a 0.6% increase in July. The Core PCE Price Index grew 0.2% in August following a 0.3% increase in July.

On a year-over-year basis, the headline PCE Price Index was 4.5% after an upwardly revised 4.6% in July. The Core PCE Price Index grew to 2.6% year-over-year, which is the highest reading since ‘95. Personal Savings fell to 1% in August, from 0.9% in July.

• August Personal Income is expected to increase 0.2% following a 0.2% drop in July
• Personal Spending is expected to match the 0.2% increase prior
• Core PCE is expected at 0.2% following a 0.3% prior

With the economic stimulus checks long gone, overall and disposable income — and consumption — are likely to be muted in August. The stimulus boosted disposable income 5.7% in May, but DI has fallen 1.9% and 1.1% over the past 2 months and could potentially fall further in August.

Lower gas prices over the period could have bolstered consumption in other sectors, but the corresponding drop in gas station sales is likely to limit the impact on overall August consumption data.

Price gains are expected to have been limited as broad-based declines in commodities and rise in USD are likely to have eased price pressures. This was the case for both August CPI and PPI, which each declined moderately.

Related data:
• The August Employment report revealed a 0.3% increase in aggregate income
• August unit vehicle sales rose a hefty 9%, which should provide support for consumption
• August Retail Sales were worse than expected and are will weigh on the August data, with ex-Auto Retail sales down 0.7%
• August CPI fell 0.1%; Core CPI increased 0.2%
• August PPI fell 0.9%; Core PPI increased 0.2%

• August Personal Income is expected to increase 0.2% following a 0.2% drop in July
• Personal Spending is expected to match the 0.2% increase prior
• Core PCE is expected at 0.2% following a 0.3% prior

With the economic stimulus checks long gone, overall and disposable income — and consumption — are likely to be muted in August. The stimulus boosted disposable income 5.7% in May, but DI has fallen 1.9% and 1.1% over the past 2 months and could potentially fall further in August.

Lower gas prices over the period could have bolstered consumption in other sectors, but the corresponding drop in gas station sales is likely to limit the impact on overall August consumption data.

Price gains are expected to have been limited as broad-based declines in commodities and rise in USD are likely to have eased price pressures. This was the case for both August CPI and PPI, which each declined moderately.

Related data:
• The August Employment report revealed a 0.3% increase in aggregate income
• August unit vehicle sales rose a hefty 9%, which should provide support for consumption
• August Retail Sales were worse than expected and are will weigh on the August data, with ex-Auto Retail sales down 0.7%
• August CPI fell 0.1%; Core CPI increased 0.2%
• August PPI fell 0.9%; Core PPI increased 0.2%