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Th e M Rep o RT | 47 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t ANALYTICS The laTesT Personal income, spending Picks Up steam Latest data offers hope heading into winter months. i n a hopeful sign for the year's closing months, con- sumer spending saw a siz- able increase as Americans' income grew. The Bureau of Economic Analysis (BEA) reported that personal consumption expendi- tures increased $57.5 billion—0.5 percent—month-over-month in August. The increase in spending followed a meager revised increase of less than 0.1 percent for July. Most of the increase came from a 1.9-percent improvement in purchases of durable goods, much of which came from spending on automobiles. Spending was helped by a 0.3-percent pickup in personal income, totaling an increase of $47.3 billion. "The storyline from last month's personal income and spending release was an increased concern of softer real consumer spending in the third quarter," said Eugenio Aleman and Michael Brown, senior economists for Wells Fargo's Economics Group. "Today's release indicates that last month's storyline may not be as accurate in light of the upward revisions to spending growth." Another contributor was the modest pace of growth in per- sonal consumption expenditures (PCE), which were up 1.5 percent year-over-year, well short of the Federal Reserve's 2 percent target for inflation. As the central bank comes closer to ending its bond- buying stimulus program and focuses on a timeline for raising short-term interest rates, soft inflation figures could mean a continued cautious stance ahead. "Given the modest inflation readings for the PCE deflator in recent months, we expect that the Fed will be slow to raise rates, deferring to June of next year," Aleman and Brown said. "Given the strengthening do- mestic demand environment, it should only be a matter of time before some inflation pressures begin to build again." Pending Home sales retreat Declining number of distressed homes partially to blame. a s existing-home sales dipped in August, so too did contract signings, according to an industry tracker. The National Association of Realtors (NAR) reported a 1-percent decline in its Pending Home Sales Index for August. The drop brings the index down to 104.7, its sec- ond highest reading so far this year. Even with the decrease, the index remained above 100 (considered an average level of activity) for the fourth straight month. The drop in the pending sales measure came in the same month that the as- sociation reported a dip in existing-home sales. According to NAR, sales of existing homes in August were at a seasonally adjusted annual rate of 5.05 million, down 1.8 percent from July. NAR Chief Economist Lawrence Yun said the decline in both closed and pending sales reflects declining distressed sales and investor activity. "Fewer distressed homes at bargain prices and the acknowledgement that we're entering a rising interest rate environment likely caused hesitation among investors last month," Yun said. "With in- vestors pulling back, the mar- ket is shifting more towards traditional and first-time buyers who rely on mortgages to purchase a home." The shift is problematic for the market, considering the currently weak level of first-time homebuyer activity. According to NAR, first-time buyers have represented less than one-third of all buyers each month for the past two years. However, Yun remains hopeful. "The employment outlook for young adults is brighten- ing, and their incomes finally appear to be rising," he said. "Jobs and income gains will help repay student debt and better position first-time buyers, setting the stage for improved sales growth in upcoming years." Contract signings slowed down in three of the four Census regions, picking up only in the West, which saw its re- gional index increase 2.6 percent. In the other regions: pend- ing sales were down 3 percent month-over-month in the Northeast, 2.1 percent in the Midwest, and 1.4 percent in the South. "The employment outlook for young adults is brightening and their incomes finally appear to be rising." —Lawrence Yun NAR