Highlights
Today's personal income report was quite healthy on the income side and also on the spending side once the impact of declining gasoline prices is discounted. Core inflation, however, remains stubbornly on the high side. Personal income increased 0.4 percent in October, following a 0.5 percent boost in September. The consensus had projected a 0.5 percent gain in personal income in October. Personal income is up 5.8 percent on a year-on-year basis, compared to 5.9 percent in September. Importantly, wages and salaries income rose a robust monthly 0.6 percent in October - equaling the jump in September.

Personal consumption rose 0.2 percent in October after a 0.2 percent drop in September. The consensus had expected a 0.1 percent rise in personal consumption for September. Once again, the overall figure for personal consumption was pulled down by declining gasoline prices as seen in nondurables. Nondurables fell 0.6 percent in October, following a 1.5 percent drop in September. For the latest month, durables rose 0.2 percent while services jumped 0.6 percent. But in real terms (year 2000 chained dollars), overall personal consumption remained healthy with a 0.4 percent boost, following a 0.2 percent gain in September. Back to nominal terms, personal consumption is up 5.0 percent year-on-year in October, compared to 5.2 percent in September. The personal savings rate edged up to minus 0.6 percent in October from minus 0.7 percent in September.

Inflation data are very good for overall personal consumption - primarily due to declining gasoline prices. Core inflation remains a little high. The overall PCE deflator fell 0.2 percent in October, following a 0.3 percent drop in September. The core PCE deflator rose 0.2 percent in October - the same as in September. The consensus had expected a 0.1 percent increase in the core PCE deflator for October. On a year-on-year basis, the overall PCE deflator is up 1.5 percent in October - down from 2.0 percent in September. On a year-on-year basis, the core deflator is up 2.4 percent in October - unchanged from September.

Today's report shows a healthy consumer sector. The wages and salaries component is particularly robust and spending is on a strong uptrend. There are few signs of the consumer sector slowing. Equities should be relieved that the personal income report has lowered the odds of a recession and bolstered the soft landing scenario. The bond market should not like the report given the robust demand in the report and lower odds for the Fed cutting rates soon.