Personal Income & Personal Consumption Expenditures

Consumer spending increased 0.6 percent in September, surprising in light of the meager 0.1 percent gain in personal income. As a result, the saving rate plunged to 3.6 percent, its lowest level since before the recession. This is the third consecutive month that spending has outpaced income. There are several reasons for this. Pent-up demand has been building, coaxing consumers to loosen up a little despite the abysmal consumer confidence readings. Consumers are borrowing again for cars, educations and a few other categories, which boosts their spending power, although they continue to pay down or default on credit card and mortgage debt. Also, Hurricane Irene could have depressed spending in August and accelerated it in September. Consumer spending is not yet strong enough to lead the U.S. into a virtuous cycle where spending leads to more hiring, which in turn leads to further spending. But neither is it so weak that it portends a near-term recession. This is a hopeful sign for retailers and shopping center landlords as the critical holiday shopping season approaches.