Personal Income Up, Spending Down in September 2008

The Bureau of Economic Analysis is out with their September numbers and the results show a consumer trying to shed debt and repair personal balance sheets. Personal income was up $24.5 billion, or 0.2 percent, and disposable personal income (DPI) increased $25.7 billion, or 0.2 percent in September. Personal consumption expenditures (PCE) decreased $33.6 billion, or 0.3 percent. So, consumers earned more but spent less. The difference, approximately $59 billion is an increase in the nation's savings rate.

This was inevitable. As we've written about before, consumers became overextended with debt over the last ten years and now need a period to catch their breaths, get out of debt, and save up some cash. This trend will help banks as the money saved can become a source of stable deposits for future lending.

The downside to this is that less spending will hurt economic growth and may lead to layoffs and stagnant salaries, which will eventually show up in the income numbers.

So, what does this mean from a practical standpoint? The sky is not falling for those outside of the finance and housing industries. Manufacturing also looked weak in the report, most likely driven by the auto industry. Wages are still growing across many sectors and people are now savings more of their money as opposed to spending it on cars, houses, televisions, phone, etc. Try to seperate the hype from the reality. The reality is that the country is going through a needed retrenchment period and will emerge stronger for it.