Inflation hawks found few morsels to chew on in September's personal income, consumer spending and inflation reports. Real disposable incomes and consumer spending declined 0.1 percent and 0.6 percent, respectively, while core consumer prices rose just 0.1 percent, the U.S. Commerce Department announced Friday.

Economists surveyed by Bloomberg News had expected personal income to income to be flat, consumer spending to fall 0.6 percent, and core consumer prices to rise 0.1 percent.

The third-quarter employment cost index, a broad measure of wage and benefit costs in the private sector, also came out today. The U.S. Labor Department announced that it rose just 0.4 percent, the same as in the second quarter. Equally significant, on a year-over-year basis, the employment cost index is up just 1.5 percent, the smallest increase since the government started tracking the data in 1982. The Bloomberg survey had expected a 1.8 percent annual increase.

In current dollars (not adjusted for inflation), consumer spending declined 0.5 percent in September after rising 1.4 percent n August. Current-dollar (inflation-adjusted) income was flat in September after rising 0.1 percent in August.

Inflation remains tame. Consumer prices increased just 0.1 percent in September, and core consumer prices, which exclude the often-volatile food and energy component, also increased just 0.1 percent. What's more, in the past year, consumer prices are down 0.5 percent while core prices are up 1.3 percent.

Also, the U.S. savings rate increased to 3.3 percent in September from 2.8 percent in August. That's well above the savings rate for the previous economic expansion, when it went negative, meaning Americans actually spent more than they earned. Economists say the U.S. has entered a 'frugal consumer' era to make up for previous overconsumption and depleted nest eggs, and so far in 2009, that's been the case, with the savings rate remaining near 3 percent.

Further, the 0.6 percent decline in consumer spending in September reflected the end of the federal government's "cash-for-clunkers" auto rebate program. Real consumer spending on durable goods, which includes autos, plunged 7.2 percent in September after rising 6.7 percent in August.

Real spending on nondurable good rose 0.5 percent in September following a 0.9 percent gain in August. And real spending on services rose 0.1 percent after a 0.2 percent decrease in August.

On the other side, income from wages and salaries declined 0.2 percent in September. Income from assets decreased 0.8 percent, small business income rose 0.1 percent, and rental income increased 1.9 percent.

Economic Analysis: The key takeaways from the data: Consumer spending retreated, and it remains to be seen whether it will be sufficient to boost GDP in the quarters ahead. As of now, the summer surge in consumer spending was largely due to the cash-for-clunkers program.

Also, employment costs remain low, rising just 1.5 percent in the past year -- something one would expect, given the large decline in payrolls and high unemployment. There's little wage pressure, and as a result inflation remains under control, with consumer prices actually declining 0.5 percent in the past year, with core prices rising 1.3 percent. The U.S. Federal Reserve closely monitors the 12-month core rate because it's strongly correlated with rises/declines in future inflation. As of now, that rate isn't high. If it remains near 1.5 percent, that will enable the Fed to maintain an accommodative monetary policy to stimulate the U.S. economy.


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