Americans are spending more money, but their incomes aren't keeping up.

Driving the news: Personal consumption expenditures rose a scorching 0.7% in September, the Commerce Department said, or 0.4% when adjusted for inflation. That is a key factor in the strong 4.9% annualized Q3 GDP growth number reported yesterday.

• But one not-so-great takeaway showed personal income rose only 0.3%. Real disposable personal income — what Americans make after adjusting for inflation and taxes — fell 0.1%, and is down for four consecutive months.
• That brought the personal saving rate down to 3.4%, down from 4%. It was lower than that for several months last year, but before that, it hadn't been that low since 2008.

Why it matters: Consumer spending was the main driver of a summer growth surge, but Americans can't keep cutting back their savings forever. That creates a big risk for the economy in 2024 that consumers will be forced to cut back.

What they're saying: Americans have "been running down our savings and borrowing more to fund this spending growth through the recent period, and that is not sustainable," wrote James Knightley, ING's chief international economist, in a note.

• "Savings are finite and are being exhausted at a rapid rate," he wrote, "with various estimates suggesting that excess savings accrued during the pandemic could be exhausted in the first half of next year."

The report also includes the Personal Consumption Expenditures Price Index, the Federal Reserve's favored inflation measure.

• It showed stable overall inflation year-over-year at 3.4% and core inflation — excluding food and energy — edging down to 3.7%, from 3.8%. That was the lowest since 2021.

Yes, but: Core PCE inflation ticked up month-on-month to 0.3%, the highest since May. While not enough to change the Fed's near-term policy plans — it will likely leave rates unchanged at a meeting next week — it's an unwelcome reversal.

• For the three months ended in August, core PCE inflation was rising at a 2% annual rate, spot-on the Fed's inflation target. But that rose to 2.5% for the three months ended in September.

The bottom line: The spending-driven growth of the summer may not be sustainable given weak income growth, and the path to lower inflation still looks bumpy.

Last week, we heard from Fed chief Jerome Powell on his diagnosis of the surge in long-term interest rates. In the last 24 hours, two of President Biden's top economic officials have also weighed in.

Driving the news: In an event yesterday, Treasury Secretary Janet Yellen dismissed the idea that the expectation of high future budget deficits was the primary driver of rising rates and falling prices of long-term Treasury bonds.

• Instead, she emphasized the role of higher expectations for economic growth.

What they're saying: "The economy is continuing to show tremendous robustness and that suggests that interest rates are likely to stay higher for longer," Yellen said in a Q&A with Bloomberg's Margaret Collins.

• "We're seeing yields go up in most advanced countries," she noted.

This morning, Lael Brainard, director of the White House National Economic Council, faced the same question.

• "I think it's still too early to tell exactly what the relative contributions are," to the rates surge, Brainard said at the Peterson Institute for International Economics. She noted both fundamental and technical factors that seem to be at play.
• There are "changes in supply and demand in the short-term that are on the technical side that market participants are certainly pointing to as part of the story," Brainard told Peterson's Adam Posen.
• On the fundamentals side, "fiscal may be a part of that, higher productivity may be a part of a somewhat stronger neutral rate of interest," she added. "There are a variety of possible factors."