Highlights
News on the consumer sector this morning was mixed as personal income came in a little above expectations but jobless claims were somewhat worse than anticipated. Personal income in August edged up 0.2 percent after an upwardly revised 0.2 percent increase the month before. The August gain in income was above the consensus forecast for a 0.1 percent rise. The wages and salaries component also rose 0.2 percent in the latest two months.

While everyone expected spending to be up due to a surge in motor vehicle sales, unexpected good news was that consumers were spreading some cash around elsewhere, too. Consumer spending spiked on cash-for-clunkers auto purchases as personal consumption expenditures surged 1.3 percent in August, following a 0.3 percent rise in July. The latest number topped the consensus forecast for a 1.1 percent increase. Once again, strength was in durables, which jumped 5.3 percent on sharply higher motor vehicle sales. Nondurables were robust also with a 2.3 percent boost while services advanced 0.4 percent.

Inflation was mixed as the headline number was moved notably higher while the core rate was subdued. The headline PCE price index jumped to 0.3 percent after a flat reading in July. Core PCE inflation was unchanged at 0.1 percent, equaling market expectations.

Year on year, personal income growth slipped to minus 2.6 percent from minus 2.5 percent in July. Year-ago headline PCE inflation firmed to negative 0.5 percent from minus 0.8 percent the previous month. Year-ago core PCE inflation eased to 1.3 percent from 1.4 percent in July.

The good news is that the consumer is making a comeback-even beyond the jump in auto sales. Nondurables and services were healthy-even after discounting inflation. And there was a moderate gain in income. And soft core inflation numbers should keep the Fed happy-letting the FOMC keep interest rates low as planned. Overall, the personal income report was favorable and should be a positive for equities. However, initial jobless claims were higher than expected and that may get more market attention.

Market Consensus Before Announcement
Personal income in July was unchanged after plunging a sharp 1.1 percent in June from the end of a fiscal stimulus program. The wages and salaries component was sluggish but at least gained 0.1 percent, following a 0.3 percent drop in June. Consumer spending was up 0.2 percent in July but it was mainly the surge in auto sales that brought about a positive number. Meanwhile, the headline PCE price index slowed to a flat reading after surging 0.5 percent in June. The core PCE price index also softened, rising only 0.1 percent after a 0.2 percent boost in June. Looking ahead, a 0.3 percent boost in average weekly earnings for August could keep the wages & salaries component of personal income positive. We will certainly see a surge in PCEs as retail sales jumped 2.7 percent for August. Inflation will be mixed, reflecting a 0.4 percent jump in the CPI and a 0.1 percent increase in the core CPI for August.

2009 Release Schedule

Released On: 2/2 3/2 3/27 4/30 6/1 6/26 8/4 8/28 10/1 10/30 11/25 12/23 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov