📝 Spending Continues to Outstrip Income: Wells Fargo

After adjusting for inflation, income was roughly flat for the month, while real spending increased 0.3% even as the prior month's real spending number was revised sharply higher from +0.1% to +0.3%.

The saving rate dipped to 3.1%, which is roughly where it was leading into the financial crisis in 2008.

Even after adjusting for prices, consumers increased spending across the board. Real spending on durable goods rose 0.1%, non-durable goods was up 0.6%, and the much larger services category shot up 0.3%.

Still, the quickening pace of core inflation more or less makes another 75 bps hike all but assured at the FOMC meeting this coming Wednesday, Nov. 2. That could mark the last 75 bps hike of this cycle if inflation slows markedly as we expect it to, which would allow for a more gradual pace of tightening.

Our baseline expectation is that while inflation is rolling over, it will be a long and bumpy way down, which will again exert some downward pressure on real disposable income growth in coming months. Furthermore, with most measures of labor demand beginning to top out, wage growth should soon moderate, and with this representing the largest source of income for most households, lower wage gains will bite into nominal personal income growth. Households thus will likely continue to save less of their monthly income to consume.

- Wells Fargo