The Bureau of Economic Analysis report on September Personal Income and Outlays signaled healthy and growing demand. According to the BEA:
The $105.8 billion increase in current-dollar PCE in September reflected an increase of $72.1 billion in spending for services and an increase of $33.7 billion in spending for goods (table 2). Within services, the largest contributors to the increase were health care and housing and utilities (led by housing). Within goods, the largest contributors to the increase were other nondurable goods (led by prescription drugs), food and beverages, and motor vehicles and parts (led by new light trucks). These increases were partly offset by a decrease in gasoline and other energy goods.
This increased demand was paid for with higher wages (up 0.5 percent from August) and another slight decline in the personal saving rate. Even with strong demand, the inflation rate continued to moderate. The BEA finds, “From the same month one year ago, the PCE price index for September increased 2.1 percent. Prices for goods decreased 1.2 percent and prices for services increased 3.7 percent. Food prices increased 1.2 percent and energy prices decreased 8.1 percent. Excluding food and energy, the PCE price index increased 2.7 percent from one year ago.”
The chart below reflects inflation adjusted “real” personal consumption expenditures. The blue line is total real PCE. The red line is real PCE on Food-At-Home. To be very clear: spending due to inflation has been smoothed out of these outcomes. Overall PCE has recovered its long-term pre-pandemic incremental increase. Slightly more affluent folks expend slightly more on consuming goods and services. This is good news.
The red line is also good news, but more mysterious (at least to me). During the pandemic FAH purchases suddenly surged when Food-Away-From-Home was much less available and other forms of consumption were likewise constrained. But FAH consumption has stayed higher even as FAFH reopened and many splurged on other forms of “revenge spending.” Even while spending much more on eating out and often complaining about grocery price inflation, consumers continue to expend much more on inflation-adjusted grocery purchases than they did pre-pandemic.
