Real Spending Rises 0.3 Percent, Real Disposable Income Up 0.2 Percent

Real income weakened in November despite a bond-market friendly and smaller than expected PCE price inflation.

The BEA’s Personal Income and Outlays report for November shows real (inflation-adjusted) disposable personal income rose 0.2 percent and real spending rose 0.3 percent.

To arrive at real numbers, subtract the PCE price index spending and income.

Personal Income

The increase in current-dollar personal income in November primarily reflected an increase in compensation that was partly offset by decreases in personal income receipts on assets and personal current transfer receipts.

Personal Consumption Expenditures

• The $81.3 billion increase in current-dollar PCE in November reflected an increase of $48.3 billion in spending for goods and an increase of $33.0 billion in spending for services.
• Within goods, the largest contributors to the increase were motor vehicles and parts (led by new motor vehicles) and recreational goods and vehicles (led by video, audio, photographic and information processing equipment and media).
• Within services, the largest contributors to the increase were spending for financial services and insurance (led by financial service charges, fees, and commissions); recreation services (led membership clubs, sports centers, parks, theaters and museums as well as gambling); and health care (led by hospitals).

PCE Price Index

• From the preceding month, the PCE price index for November increased 0.1 percent. Prices for goods increased less than 0.1 percent and prices for services increased 0.2 percent. Food prices increased 0.2 percent and energy prices also increased 0.2 percent. Excluding food and energy, the PCE price index increased 0.1 percent.
• From the same month one year ago, the PCE price index for November increased 2.4 percent. Prices for goods decreased 0.4 percent and prices for services increased 3.8 percent. Food prices increased 1.4 percent and energy prices decreased 4.0 percent. Excluding food and energy, the PCE price index increased 2.8 percent from one year ago.

Market Reactions

The 0.1 percent rise in the PCE price index and core PCE price index was better than the Bloomberg Econoday consensus estimates of 0.2 percent each.

The stock market is giddy on the news (it doesn’t take much), reversing some of the losses from the Fed announcement on Wednesday.

The yield on the 30-year long bond is down 6 basis point to 4.62 percent, and the yield on the 10-year note is down 8 basis points to 4.49 percent.

Nonetheless, it’s been a nasty few weeks for the bond market with yields on the long end rising.

The 30-year mortgage rate did not budge. It’s a buyer unfriendly 7.14 percent.

A Hawkish Fed Projects More Inflation, Fewer Interest Rate Cuts in 2025

Based on the Fed’s own economic projections and statements, it should not have cut interest rates on Wednesday.

Here’s the most galling statement Fed Chair Jerome Powell made “Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals.“

This Fed does not follow the data, does not serve the public, and has singlehandedly destroyed the housing market with an unwise mix of QE to infinity and rate cutting madness.

For discussion, please see A Hawkish Fed Projects More Inflation, Fewer Interest Rate Cuts in 2025

Higher inflation expectations coupled with today’s interest rate cut makes little sense. Nonetheless, the Fed cut rates with only one dissent.