With various fiscal stimulus programs having ended in the summer, and even more set to expire on Dec 31 when nearly 15 million Americans will end up without emergency unemployment claims unless the government steps in, it shouldn’t be a surprise that American incomes – largely boosted by government “transfer payments” – shrank in October, sliding -0.7% compared to September, far weaker than the -0.1% expected. At the same time spending remained strong, rising 0.5% in October, above the 0.4% expected, if a modest slowdown from the 1.2% in September, and up for the 6th consecutive month.

Another way of seeing the convergence of spending, which has rebounded strongly from the March crash, and incomes which are shrinking rapidly since the massive multi-trillion spending package in the spring, is shown below.

So with incomes shrinking as government welfare payments fade away, how did American household manage to grow spending  in October for the 6th consecutive month? Simple: by digging deeper into their savings, which as a reminder soared as high 33.7% of Personal Income following the massive fiscal stimulus in April. Well, as of October, this number has tumbled almost back to trendline, and at 13.6%, it was 1% lower than September, and 20% below its record high hit in April.

At this rate, savings will be back to “normal” just around the time the US economy double dips some time in Q1, if JPM’s forecast of a -1% GDP print in Q1 is correct. Meaning: the safety net propping up the US consumer, who accounts for 70% of GDP, is almost gone.

Finally, going back to the composition of incomes, an notable observation is that while private sector wages continued their solid recovery in October, rising 3.0% Y/Y, up from 2.6% in September and on track to pre-covid levels, government wages tumbled -2.2% which curiously happens to be the biggest annual drop in government wages on record.

One wonders: as Trump’s contemplates next steps, is one of his “presents” to the deep state a big drop in its compensation?