Personal
Income rose 0.3% in October (in line with expectations)
compared to a downwardly revised 0.1% change in
September. On a year-over-year basis (yoy) Personal
Income is up 3.3%.
Wages
and Salaries increased 0.1%. On a yoy basis, wages and
salaries are up 2.3%. Disposable personal income (DPI)
gained 0.4% and is up 3.8% yoy.
Nominal
Personal Consumption Expenditures (PCE) fell by 1.0%and
was in line with expectations although there was a
slight downward revision to earlier months. Spending on
both Durables and Non-durables plunged, dropping 4.0%
and 2.5% respectively. Spending on Services rose 0.2%.
On a yoy basis, PCE is up 2.3%. After adjusting for
inflation, in “real” terms, personal consumption
expenditures fell 0.5% and down 0.9% over the past year.
At $8,197.2 bn real PCE is well below the average of Q3,
$8,261.8 bn, (lower at a 3.1% annual rate) indicating a
very weak start to Q4. This was the fifth consecutive
monthly decline in real PCE, the first time this has
happened since 9/90 to 1/91.
Inflation,
measured by the PCE deflator, fell 0.6%in October
primarily due to falling energy prices. On a yoy basis
The PCE deflator is up 3.2%. The much watched PCE
“core” price index remained unchanged and stands at
2.1% on a yoy measurement.
Overall,
so far personal income has held up well despite the
surge in unemployment. Spending on the other hand is
plunging driven lower by the negative wealth effects of
declining home and equity values, the ongoing financial
crisis and the fear of higher unemployment rates. The
sharp drop in October real spending suggests that Q4
spending will likely decline sharply again. Fixed income
markets continue to be extremely volatile with the ten
year treasury yielding about 3.014% at the current time
compared to 3.11% last night.
New
Home Sales fell 5.3% in October following a downwardly
revised increase of 0.7% in September. Sales stand at a
433,000 annual rate. The October sales rate is the
lowest level since August of 1982 (407k). On a
year-over-year basis (yoy), new home sales are down a
whopping 40.1% and are down 68.5% from their peak in
July of 2005 (1389k).
Inventory
levels continue to decline reaching 381,000 units in
October, the lowest level of inventories in better than
four years (Feb 2004 = 372,000). On the month,
inventories declined 8.0% and are lower by 25.7% over
the last twelve months. The
decline in inventories was offset by the slower sales
rate as the month’s supply of unsold homes increased
to 11.1 months from 10.9 months in September. To put the
inventory overhang in perspective, between 2000 and 2005
the months’ supply averaged 4.1 months.
Home
prices fell sharply on the month with the median home
sale price falling 1.7% while the average home sale
price declined 4.0%. On a year-over-year basis, the
median sales price and the average sales price fell 7.0%
and 12.2% respectively. The decline in home prices
reflects the dismal credit conditions,
weaker economic conditions and the composition of sales
between high and low cost regions.
Overall,
after peaking in 2006, new home sales fell
sharply through March of 2006. Since then, the rate of
decline has slowed, but the downtrend continues. Some
good news is found in the declining inventory levels but
the month’s supply remains quite high and this will
keep downward pressure on prices.
