October real Personal Consumption Expenditures increased $41.2 billion (0.2 percent). Food expenditures were more subdued (see first chart below). September food-at-home expenditures — adjusted for inflation — were $1154.3 billion. October FAH spending was $1154.8 for a 0.09995 percent increase.
Most media commentary and stock market investors have focused on the implications for inflation, future Federal Reserve actions, and economic growth. Here’s how Bloomberg framed the results:
US consumer spending, inflation and the labor market all cooled in recent weeks, adding to evidence that the economy is slowing. Inflation-adjusted personal spending rose 0.2% last month after a downwardly revised 0.3% advance in September, according to the Bureau of Economic Analysis. Separate data Thursday showed recurring applications for unemployment benefits rose to the highest in about two years. The figures are consistent with expectations that the economy will moderate in the fourth quarter following the strongest growth pace in nearly two years.
From a Supply Chain Resilience perspective what I see is effectual demand vigorously pulling supply. The current PCE trajectory is consistent with the (non-pandemic) slope experienced since about 2015. In 2023 demand for groceries and other Food-At-Home has finally recovered its pre-pandemic slope. Demand for Food-Away-From-Home (see second chart below) has recovered something close to its long-time relationship with FAH.
I was reminded this week that a Complex Adaptive System — such as the US economy — features constant disequilibrium. But, so far, 2023 has been about as close to equilibrium as a system this big and dynamic can get.
Is something close to the current flow sustainable? If a dip in the real Gross Domestic Product can be avoided there is good cause to believe so (here and here and here). Many are concerned that consumers are over-spending and will at some point suddenly pull back (here and here and here). This is almost certainly happening for the less affluent one-third to two-fifths of households. Given the out-sized role of consumption in US GDP this could eventually prompt problems. A counter to this concern is suggested by the final chart below. Overall household debt service payments remain well below long-time averages as a percent of disposable income.
A couple of weeks ago a longish piece in the Wall Street Journal noted, “This year, the supply rebound finally showed up. Bottlenecks eased, rising immigration and workforce participation boosted the labor force, and a pandemic-era boom in newly built apartments hit the market. Those are tamping down goods prices, rents and wages. Having more workers enter the labor force is a relief valve that is allowing “wage growth to slow without having a big correction in demand,” said San Francisco Fed President Mary Daly.”
Consistent or incrementally increased demand supports consistent employment which pulls supply by paying for recurring patterns of consumption. We should anticipate disequilibrium, but right now the tight rope connecting today to tomorrow has found an elusive sweet spot and winds are surprisingly calm.
