One of the more consequential economic releases we get monthly from the Bureau of Economic Analysis is on Personal Income and Outlays, which in addition to the important personal income data, also reports the monthly data on our personal consumption expenditures (PCE), which as we saw is the major component of GDP..  From that data, the BEA also computes personal savings and the national savings rate, as well as a price index for PCE, the inflation gauge the Fed targets, and which is used in this report to adjust both personal income and consumption expenditures for inflation to arrive at 'real' change figures..  Like the GDP reports, all the dollar amounts referenced by this report are seasonally adjusted and at an annual rate, so the nominal monthly dollar changes, which are not reported, are actually on the order of one twelfth of the reported amounts.  However, the percentage changes are expressed as a month over month change and are confusingly used within the report as if they refer to the annualized amounts, making for a difficult report to unpack and report on correctly...

In October, total personal income increased at a seasonally adjusted and annualized $32.9 billion rate, to what would be a gross national personal income of $14,868.3 billion annually, which was 0.2% higher than in September, when personal income increased by 0.2% over August.  Disposable personal income (DPI), which is total income after taxes, increased at an annualized rate of $23.4 billion to $13,109.3 billion annually, which was also a 0.2% increase over September, while September's DPI was up just 0.1% over August.  Increases in private wages and salaries accounted for $18.8 billion of the annualized October personal income gains in contrast to just $13.9 billion in September, as service industry payrolls increased at a $11.6 billion rate and goods producing industry payrolls rose at a $7.2 billion clip.  Increases in supplements to wages and salaries, such as employer contributions to pension plans, accounted for another $3.8 billion of October's annualized increase, while employee contributions for government social insurance, which are subtracted from the personal income figure, increased at a $2.4 billion rate.  Meanwhile, proprietors' income decreased at a $7.4 billion rate in September, as farm owners incomes fell at a $1.2 billion rate while incomes of individual proprietors of other types of business were up $8.6 billion.  Other sources of the October personal  income changes included rental income of individuals, which increased at a $2.5 billion rate in October, personal interest and dividend income, which grew at a $3.1 billion rate, and personal transfer payments from government programs, which increased at a $4.8 billion rate..   

Meanwhile, seasonally adjusted personal consumption expenditures (PCE) in October, which will be included in the change in real PCE in 4th quarter GDP, rose at a $27.3 billion annual rate to a level of $12,024.1 billion in consumer spending annually, 0.2% higher than in September, which itself was revised 0.2% higher to a rate now statistically unchanged from August.  The current dollar increase in October spending was driven by a $24.7 billion annualized increase to an annualized $8,019.5 billion spending for services and a $4.8 billion increase to $2,688.2 billion in annualized spending for non-durable goods, while outlays for durable goods fell at an annualized $2.1 billion rate to an annualized $1,316.5 billion.  Total personal outlays for October, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $26.3 billion to $12,458.2 billion annually, which left personal savings, which is disposable personal income less total outlays, at $651.2 billion in October, down from the revised $654.0 billion in personal savings in September, which was originally reported at $732.2 billion. As a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, was at 5.0%, now unchanged from September's revised savings rate, which was originally reported at 5.6%.

While our personal consumption expenditures accounted for 68.2% of our third quarter GDP, before they were included in the measurement of the change in our output they were first adjusted for inflation, to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption. That's done with the price index for personal consumption expenditures, which is included in this report, which is a chained price index based on 2009 prices = 100..  That index rose to 109.225 in October from 109.165 in September, giving us a month over month inflation rate of 0.055%, which BEA reports as +0.1%, and a year over year PCE price index increase of 1.44%, while core prices rose 1.55%.  Because of the small monthly increase, the inflation adjusted or real personal consumption expenditures were up 0.2% in October, statistically the same as the unadjusted increase, after being unchanged in September, when the PCE price index was also up fractionally.  However, using the same PCE price index, disposable personal income was deflated to show that real disposable personal income, or the purchasing power of disposable income, rose by just 0.1% in October, after increasing by 0.1% in September.

Our FRED graph below shows monthly real disposable personal income in blue and real personal consumption expenditures in red since January 2000, with the annualized scale in chained 2009 dollars for both shown in the current data box and on the left.  Also shown on this same graph in green is the monthly personal savings rate over the same period, with the scale of savings as a percentage of disposable income on the right.   The spike in income and savings at the end of 2012 was a result of bonuses and income manipulation before the year end fiscal cliff; the earlier spikes were as a result of the tax rebates enacted as a fiscal stimulus under George Bush.  Although it may appear from the graph that real disposable income has been accelerating over the past 14 years, real DPI below is not adjusted for increases in the population; on a per capita basis, real DPI per capita is up just 20.8% over the span of this graph, an increase which can largely be attributed to the non-wage components of personal income…  

(the above was excerpted from my weekly summary at Marketwatch 666)