Personal income posted another solid rise in July, up 0.4 percent on stronger labor market income. Spending got off to a decent start in the third quarter, but inflation continues to run at a disappointing pace for the Fed.
Spending in the third quarter got off to a decent start. Personal spending came in just shy of market expectations, up 0.3 percent, but last month’s spending was revised up a tick to 0.3 percent. Over the past three months, spending has increased at a 5.9 percent annualized clip. Durable goods led July’s increase, rising 1.1 percent on another month of strong auto sales. Nondurables and services each rose 0.2 percent.
That said, core inflation also remained soft, increasing 0.1 percent for the fourth straight month. On a year-over-year basis, the core index slipped to 1.2 percent. While Fed officials have continued to stress the transitory effects of falling commodity prices on inflation, some Fed officials have expressed concern over the lack of a pickup following the substantial decline in resource slack in recent years. Today’s report will do little to ease such concerns, even as inflation has remained fairly steady.
While inflation remains frustratingly low for the Fed, it continues to benefit real income and spending. Real disposable income improved 0.4 percent, while real spending is increasing at a 3.4 percent annualized clip.
With the labor market continuing to make strides and inflation set to remain mild, we expect real spending to continue to grow around a 3.0 percent clip in the second half of this year. However, consumers still appear to be somewhat cautious, with spending falling short of income for the second straight month. The personal saving rate edged up to 4.9 percent and is slightly above last year’s level of 4.8 percent.
Wages & Salaries Lead Personal Income Higher
Household income continued to grow at steady pace in July, with personal income up 0.4 percent for the fourth consecutive month. Income in July was boosted by further improvement in the labor market, where another month of solid hiring and a slightly longer workweek lifted wage and salary income up 0.5 percent, the largest monthly increase since November. Strength was also seen in proprietors’ income, where income rose by the most since October. The pickup was driven in the nonfarm component, up 0.8 percent, which suggests small businesses did better over the month. Rental income, however, slowed in July, while personal income from assets was flat. The weak reading on income from interest and dividend payments comes ahead of the recent turmoil in financial markets, which means income from this category is likely to remain under pressure.Spending in the third quarter got off to a decent start. Personal spending came in just shy of market expectations, up 0.3 percent, but last month’s spending was revised up a tick to 0.3 percent. Over the past three months, spending has increased at a 5.9 percent annualized clip. Durable goods led July’s increase, rising 1.1 percent on another month of strong auto sales. Nondurables and services each rose 0.2 percent.
Inflation Still Too Stable
Not surprising given slide in energy prices that began mid-month, inflation measured by the PCE deflator slowed in July. After an average increase of 0.27 percent the past two months, the headline PCE deflator edged up just 0.08 percent. The weaker outturn was in part due to smaller gains in energy and food relative to June, up only 0.1 and 0.2 percent respectively.That said, core inflation also remained soft, increasing 0.1 percent for the fourth straight month. On a year-over-year basis, the core index slipped to 1.2 percent. While Fed officials have continued to stress the transitory effects of falling commodity prices on inflation, some Fed officials have expressed concern over the lack of a pickup following the substantial decline in resource slack in recent years. Today’s report will do little to ease such concerns, even as inflation has remained fairly steady.
While inflation remains frustratingly low for the Fed, it continues to benefit real income and spending. Real disposable income improved 0.4 percent, while real spending is increasing at a 3.4 percent annualized clip.
With the labor market continuing to make strides and inflation set to remain mild, we expect real spending to continue to grow around a 3.0 percent clip in the second half of this year. However, consumers still appear to be somewhat cautious, with spending falling short of income for the second straight month. The personal saving rate edged up to 4.9 percent and is slightly above last year’s level of 4.8 percent.
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