October 2010 Personal Income and Outlays, Retail Sales and Consumer Debt

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Bureau of Economic Analysis data showed that disposable personal income (DPI) increased $48.3 billion (0.4 percent) in October, while personal consumption expenditures (PCE) increased by a slightly smaller $44.0 billion (also 0.4 percent). Real (i.e., inflation-adjusted) DPI increased 0.3 percent in October, reversing September’s decrease of 0.2 percent. Real PCE increased 0.3 percent, following on the heels of an increase of 0.2 percent.
 

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Retail sales rose by 1.2 percent during October, their largest gain in seven months. Motor vehicles posted the largest percentage gain (5.0 percent), but the “Other” category exhibited the largest absolute change ($4.4 billion).
 

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Consumers appear to be taking on more debt. Total consumer debt outstanding increased for a second month in October, at an annual rate of 1.7 percent. Revolving credit (i.e., credit cards) decreased at an annual rate of 8.4 percent -- the 26th consecutive monthly decrease, while nonrevolving credit increased at an annual rate of 6.8 percent.

Looking at just the “top” line might lead one to conclude that consumers are opening up their wallets. For example, “Consumer finances are progressively improving, which is a good thing, but maybe not as much as these numbers indicate,” said Gregory Daco, a senior economist at IHS Global Insight in Lexington, Massachusetts. “We still have a lot of deleveraging going on, but the rate is slowing down. The conditions for consumers are slowly improving.” Looking at the report details tells a different story, however. In fact, all of the increase was due to a $31.9 billion jump in Federal Government debt used to fund student loans. Ex-federally funded student loans, consumer credit declined by about $28 billion.