October Personal Consumption Exceeds Disposable
Income for the Fourth Consecutive Month
Good News for Retailers but Slower Growth Beckons in 2006
By Dr. Peter Morici, Professor of International Business

The Commerce Department reported today that personal disposable income increased by 0.3 percent in October and personal consumption expenditures increased by 0.2 in October; however personal consumption exceeded income for the fourth consecutive month. American consumers have not done any significant saving since March

Over the last three years, rising home prices and moderate interest rates have permitted consumers to run up credit card debt and then refinance their homes. However, home prices have been fairly stable since June, and Fed efforts to raise interest rates are finally affecting mortgage rates.

All this means a good Christmas season for retailers but a slowdown in consumer spending in the new year.

Retailers will likely see a six percent increase in holiday sales over last year--more than retail industry analysts predicted--but January credit card bills will cause consumers to sober up and trim purchases for the spring.

Celebrate while you can. Those great third quarter GDP growth numbers are unlikely to be repeated in the New Year.