The Quarter Averaged Over Its Own Ending
Real consumer spending grew at a 3.8 percent annual rate in the third quarter. In September, the last month of that quarter, real consumer spending did not grow at all.
Both figures come from the Bureau of Economic Analysis, and both were published on the morning of October 29.
Real gross domestic product rose at a 3.4 percent annual rate in the advance estimate, up from 2.2 percent in the second quarter. Economists surveyed by FactSet had looked for 3 percent.
Headlines gave the credit to two places. One was the consumer, and the other was spending on artificial intelligence.
The key observation is that the quarter's consumer spending ran at a 3.8 percent annual rate and its final month ran at zero.
A quarterly rate is an average of three months.
The September report describes the end of that average. Real spending was flat, and real disposable income fell 0.3 percent.
Households did spend more dollars. Personal spending rose 0.5 percent in current dollars, and prices rose 0.5 percent in the same month.
The two offset each other. What went out bought the same quantity of goods as the month before.
Over twelve months the PCE price index rose 3.6 percent and the core measure rose 3.1 percent. Both readings were higher than August's.
Inside the quarterly accounts that same index rose at a 2.1 percent annual rate, down from 5.0 percent in the second quarter. One figure measures three months against three months, and the other measures a year against a year.
Income did not cover the difference. Disposable income rose 0.2 percent in dollars while spending rose 0.5 percent.
The saving rate shows where the rest came from. It was 3.8 percent in September, 4.1 percent in August and 4.6 percent in July.
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This is an income-saving squeeze.
A household with falling real income has two ways to hold its spending steady. It can borrow or it can save less.
September shows the second one. Spending held in dollars, the goods did not grow, and the saving rate absorbed the gap.
Whether that reflects confidence or necessity is not answered by these figures. The accounts record the flow and not the reason behind it.
The quarter's strength was also narrower than the headline suggests. Business investment outside housing rose 12.7 percent, and information processing equipment rose 37.4 percent.
Residential investment fell 3.3 percent, and it has now fallen in six of the last seven quarters. Software rose 9.6 percent and research and development rose 7.5 percent.
This was the advance estimate, the first of three. The agency will revise it twice.
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What the fourth quarter shows
Advance monthly retail sales. This counts what households actually paid at the register, and it lands about two weeks after the month closes. A rebound would place September as a single soft month. A second flat reading would extend it into the quarter now running. (Source: Census Bureau)
The monthly real spending line and the saving rate. These arrive together in the personal income report, which makes the trade between them visible in one table. A saving rate that stabilizes while real spending grows would show income doing the work. A saving rate that keeps falling would show the buffer doing it. (Source: Bureau of Economic Analysis)
Credit card charge-off rates. The quarterly banking figures record what lenders wrote off as uncollectable, which is where a long drawdown eventually surfaces. Rising charge-offs would show households passing the point where saving less was enough. A steady rate would show the drawdown still being carried. (Source: Federal Deposit Insurance Corporation)
When a quarterly figure and a monthly figure from the same agency point in different directions, the monthly one is closer to now. The quarterly one is closer to what already happened.
Talk soon,
The Playbook Daily
