Economic Reports Indicate Recovery Continues

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Today’s early morning U.S. reports revealed an upside round of income surprises in the September personal income report, alongside firmness in consumption that was implied by yesterday’s GDP report. We also saw an expected 0.5% Q3 rise in the ECI index that left a pull-back in the y/y gauge to 2.4% from 2.7% in Q2 and 2.8% in Q1. For income, we saw a hefty 0.9% September increase that trimmed a -2.5% (was -2.7%) August drop with the unwind of CARES Act payments.

We now have a surprisingly strong Q3 close for income that lifts prospects for GDP into year-end, though we left our Q4 GDP growth estimate at 6.4%, after the reported 3.1% pace in Q3. We expect a solid 9.0% Q4 growth pace for real consumption after the 40.7% Q3 rate. The savings rate is proving slow to unwind the lofty 33.6% April peak, with a small drop to 14.3% in September, leaving considerable lingering support for spending from the CARES Act into the start of 2021.

* Income rose 0.9% and consumption rose 1.4%, after respective August swings of -2.5% (was -2.7%) and 1.0%, and July gains of 0.9% (was 0.5%) and 1.5%.

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* Real consumption rose 1.2%, after rising 0.7% in August and 1.3% (was 1.1%) in July.

* Wages and salaries rose 0.8% after rising 1.4% (was 1.3%) in August, while disposable income rose 0.9% after falling -2.9% (was -3.2%) in August.

* The PCE chain price headline rose 0.2% in September, while PCE chain price core also rose 0.2%.

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* We saw y/y chain price gains of 1.4% for the headline and 1.5% for the core, after respective downwardly revised August gains of 1.3% (was 1.4%) and 1.4% (was 1.6%).

* We saw Q3 ECI quarterly gains of 0.5% overall, 0.4% for wages and salaries, and 0.6% for benefits.

* We saw respective unrevised Q2 gains of 0.5%, 0.4%, and 0.8%.

* We saw Q3 ECI y/y gains of 2.4% overall, 2.5% for wages and salaries, and 2.3% for benefits.

* We saw respective Q2 gains of 2.7%, 2.9%, and 2.2%.

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