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The BEA’s Personal Income and Outlays report for October shows real (inflation-adjusted) disposable personal income rose 0.4 percent but real spending rose 0.1 percent.

To arrive at real numbers, subtract the PCE price index spending and income. Rounding accounts for apparent difference (e.g the PCE price index was rounded down to 0.2 but current dollar spending was rounded up to 0.4)

Personal Income

• The $72.3 billion increase in current-dollar PCE PCE in October reflected an increase of $74.7 billion in spending for services and a decrease of $2.3 billion in spending for goods.
• Within services, the largest contributors to the increase were health care (led by hospitals) and housing.
• Within goods, the largest contributor to the decrease was spending for gasoline and other energy goods (led by gasoline and other motor fuel).

Personal Consumption Expenditures

• Personal outlays—the sum of PCE, personal interest payments, and personal current transfer payments—increased $69.8 billion in October.
• Personal saving was $962.7 billion in October and the personal saving rate—personal saving as a percentage of disposable personal income—was 4.4 percent.
• Within goods, the largest contributor to the increase was recreational goods and vehicles. Within services, the largest contributor to the increase was health care (both hospitals and outpatient services).

PCE Price Index

• From the preceding month, the PCE price index for October increased 0.2 percent.
• Prices for goods decreased 0.1 percent and prices for services increased 0.4 percent.
• Food prices increased less than 0.1 percent and energy prices decreased 0.1 percent. Excluding food and energy, the PCE price index increased 0.3 percent.
• From the same month one year ago, the PCE price index for October increased 2.3 percent. Prices for goods decreased 1.0 percent and prices for services increased 3.9 percent.
• From the same month one year ago, food prices increased 1.0 percent and energy prices decreased 5.9 percent. Excluding food and energy, the PCE price index increased 2.8 percent from one year ago.

PCE vs CPI

The PCE price index is the Fed’s preferred measure of inflation.

PCE includes prices paid on behalf of consumers such as Medicare and corporate health insurance.

The CPI only counts items directly paid by consumers.

As a result of those methodology differences, the CPI overweighs rent while the PCE overweighs health care.

Both indexes are flawed because neither includes home prices, only rent. In general, inflation matters, not just consumer inflation.

Fed Not Exactly Pleased With Report

The Fed is more concerned about inflation in services than goods. Prices for services increased 0.4 percent.

Excluding food and energy, the PCE price index increased 0.3 percent, and that’s not a good number either.

Moreover, Trump is threatening huge increases in tariffs which is inflationary.

November 25: Trump Threatens 25 Percent Tariffs on Mexico and Canada on Day One

Trump says he will unilaterally scrap his own allegedly “Best in History” trade deal with huge tariff hikes on our top two trading partners. Is this constitutional?

November 27: What Industries Will Suffer the Most Under Trump’s Plan to “Make Tariff’s Great Again”?

Trump is upping the rhetoric on Mexico, Canada, and China on top of previous tariff threats. Who will be hardest hit?

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