Sharp drop in US income as enhanced jobless benefits run out
Personal incomes fell more sharply than expected last month as enhanced unemployment benefits ran their course.
Americans however continued to splash out by dipping into the still extremely high savings that they had put away during the worst of the pandemic.
According to the Department of Commerce, personal incomes fell at a month-on-month pace of 2.7% in September (consensus: -2.1%) following growth of 0.5% in the month before.
Consumption expenditures however still expanded at a 1.0% clip (consensus: 0.7%), alongside a drop in the personal savings rate from 17.7% in August to 14.1%.
As Ian Shepherdson at Pantheon Macroeconomics explained, the "plunge" in enhanced unemployment benefits resulted in an annualised $687m decline in benefit payments that more than swamped growth of $120m in wages.
Offsetting the above was the corresponding decline in the savings rate, which in any case remained very far above the 7.5% trend at which it was at before the onset of Covid-19.
But Shepherdson added: "The saving rate is likely to fall further, but it won’t return to the pre-Covid trend, about 7.5%, until people are able to return to normal spending patterns in the discretionary services sector.
"Momentum in the monthly spending numbers has slowed sharply, but the favorable base effect in consumption spending is so huge that even if September spending is unchanged, Q3 as a whole will record a 37.6% annualized increase.
"But if spending then remains unchanged through December, the Q4 increase will be just 0.9%."