Personal income increased +0.4% in September primarily due to increases in wages, salaries, and nonfarm proprietors’ income. The increase in personal income combined with a drop in the savings rate to 3.1% from 3.6% in August to fund a +1.0% (+$76 billion) increase in personal consumption expenditures (PCE), with significant spending increases for motor vehicles (+43.8 billion) and housing and utilities (+8.3 billion). The core PCE price index, which has been the Federal Reserve’s preferred measure of inflation, was up +0.1% for the month, but the yearly rate remained unchanged from August at +1.3%, well below the +2.0% target rate.

As a result of continuing moderate expansion in household spending and accelerating growth in business fixed investment, the Federal Open Market Committee (FOMC)’s November meeting statement upgraded their estimate of economic activity to rising at a “solid rate” compared to their September meeting’s “moderate” growth estimate. They noted that this growth was despite hurricane related drops in payroll employment and increases in overall inflation due to higher gasoline prices, but anticipated that hurricane effects would only influence the near term. In order to support further strengthening of the labor market and a return to 2.0% PCE core inflation, the FOMC voted to leave the federal funds target rate at 1.0 % - 1.25% and also voted to continue with the balance sheet normalization started in October.

Employment rose by 261,000 jobs in October, and the number of jobs added in August and September were revised upwards to 208,000 (+39,000) and 18,000 (+51,000), respectively, bringing the average number of jobs created over the last 3 months to 162,000 per month. The unemployment rate ticked downward -0.1% to 4.1%, but the labor force participation rate dropped -0.4% to 62.7%, and 968,000 workers left the labor force. Jobs were added in manufacturing (+24,000), temporary help services(+18,300), and rebounded for food services (+89,000) after a drop of -98,000 in August. Average hourly earnings dropped -$0.01 to $26.53, but were up +$0.63 (+2.4%) Y/Y.