by Calculated Risk on 11/25/2009 08:48:00 AM

From the BEA: Personal Income and Outlays, October 2009

Personal income increased $30.1 billion, or 0.2 percent, and disposable personal income (DPI) increased $45.7 billion, or 0.4 percent, in October, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $68.3 billion, or 0.7 percent.
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Real PCE -- PCE adjusted to remove price changes -- increased 0.4 percent in October, in contrast to a decrease of 0.7 percent in September.
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Personal saving -- DPI less personal outlays -- was $490.3 billion in October, compared with $510.4 billion in September. Personal saving as a percentage of disposable personal income was 4.4 percent in October, compared with 4.6 percent in September.

Click on graph for large image.

This graph shows the saving rate starting in 1959 (using a three month centered average for smoothing) through the October Personal Income report. The saving rate was 4.4% in October.

I expect the saving rate to continue to rise - possibly to 8% or more - slowing the growth in PCE.

The following graph shows real Personal Consumption Expenditures (PCE) through October (2005 dollars). Note that the y-axis doesn't start at zero to better show the change.

The quarterly change in PCE is based on the change from the average in one quarter, compared to the average of the preceding quarter.

The colored rectangles show the quarters, and the blue bars are the real monthly PCE.

Note that PCE in Q3 was distorted by the cash-for-clunkers program (especially August). Just using the October numbers, PCE would increase at about a 2.6% annualized rate in Q4. In general PCE growth will probably be below normal well into 2010 as households continue to repair their balance sheets.