On the income side, wages for private workers dropped from 10.8% to 1.7%, the lowest since March 2021, while, wages for government workers rose to 7.2% from 6.8%.
One item of significant note is that government transfer payments accounted for $3.9TN of personal income, leaving ex-transfers income at $16.6 tn. That means 19% of all income is transfer payments…
This ‘over-spend’ sent the savings rate plunging down to 7.5% from 9.2%, back to pre-COVID levels…
The absolute personal savings currently is just $1.336 trillion, the lowest since Jan 2020…
However, the most important aspect of today’s data is The Fed’s favorite inflation indicator which remains near 30-year-highs. The headline PCE Deflator rose 4.4% YoY, above August’s +4.2% and Core PCE Deflator rose 3.6% YoY, the same as August (but very slightly less than the +3.7% exp) – both at their highest level since 1991…
Inflation is still hot at 3.6% core but consumers had to crush savings to keep their spending levels up which is indicative of my base case of a coming drawdown in goods spending.
Something for both inflation hawks and doves in this but the structure still favors diminishing goods spending ahead which will prove highly disinflationary as wider commodities unwind.
The AUD has so far completely ignored the spectacular meltdown in global energy but, as goods spending comes off as well with global growth, there’s a tipping point somewhere.
Doubtless, that’s why AUD shorts have been so steadfast as the currency rises which, ironically, probably means more upside.
I’ll feel a lot more comfortable that we’re closing in on an AUD top when market positioning is more normalised.
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