Highlights
Today's personal income report shows a healthy consumer sector - although some oil-related price effects have to be taken into account. Income growth is strong as is consumer spending in real terms. Personal income advanced 0.5 percent in September, following a 0.4 percent rise in August. The consensus had expected a 0.3 percent increase in personal income in September. Personal income is up 6.8 percent on a year-on-year basis, compared to 9.4 percent in August. Wages and salaries income posted a 0.5 percent boost in September, following a modest 0.2 percent gain in August.

Personal consumption rose only 0.1 percent in September, following a 0.2 percent increase in August. The consensus had expected a 0.2 percent rise in personal consumption for September. However, September's overall number was held back by sharply lower gasoline prices pulling down spending on nondurables. Nondurables fell 1.2 percent in September while durables jumped 1.6 percent and services rose 0.5 percent. In real terms (year 2000 chained dollars), personal consumption actually rebounded 0.4 percent in September, following a 0.1 percent decline in August. Back to nominal terms, personal consumption is up 5.5 percent year-on-year in September, compared to 6.0 percent in August. The personal savings rate rose to minus 0.2 percent in September from minus 0.5 percent in August.

Inflation numbers look good overall and the core deflator eased marginally after an uptick in August. The overall PCE deflator fell 0.3 percent in September, compared to a 0.3 percent boost in August. September's decline is the first since November 2005. Lower gasoline prices pulled the deflator down. The core PCE deflator posted a 0.2 percent increase in September, following a 0.3 percent rise in August. The consensus expected a 0.2 percent increase in the core PCE deflator for September. On a year-on-year basis, the core deflator is up 2.4 percent in September, compared to being up 2.5 percent in August.

Today's report contains data that was already included in last week's GDP report but shows generally favorable trends on the margin. Income is healthy and inflation has come down. The sticking point is that core inflation is still lagging - perhaps too much for the Fed's taste. Equities should like the moderately strong income growth but bonds may not like the fact that today's report will force the Fed to delay interest rate cuts. As such, the dollar will likely like today's report as U.S. rates may be more attractive.