Personal income rose a strong 0.4 percent in July after June’s flat reading. Spending strengthened as well, up 0.3 percent in July with an upward revision to 0.2 percent in June.

Gains in July Were Broad Based

Personal income surged 0.4 percent in July, besting consensus estimates and signaling stronger momentum going into the second half of the year after June’s flat reading cast some doubt. The disappointing print in June largely resulted from a payback for May’s surge in personal income from assets, which overshadowed a strong 0.5 percent gain from wages and salaries in June. Personal income from assets recovered in today’s report, up a solid 0.6 percent in July, while wages and salaries growth came in at 0.5 percent again in July. This has benefitted consumers’ pocketbooks, as disposable income rose 0.3 percent in July.

- advertisement -

Personal spending was also up solidly in July, though the 0.3 percent gain was slightly below consensus estimates of 0.4 percent. Spending was up a stronger-than-first-reported 0.2 percent in June, echoing yesterday’s upward revision to personal consumption in the second look at Q2 GDP. Spending in July was boosted by a large rise in durable goods spending. Durable goods consumption rose a strong 0.6 percent on the month, though price discounts resulted in a 0.8 percent increase on a real basis. Consumption of nondurable goods was up a solid 0.5 percent in July, though inflation cut that gain to 0.3 percent in real terms. Services were less of a lift in July, and its 0.2 percent growth was essentially flat after accounting for price changes.

We knew that the disappointing report in June was largely the result of one-off factors, and yesterday’s second look at GDP—which showed a stronger consumer helping boost GDP to 3 percent in the second quarter— suggested the consumer was in solid shape at the start of H2. Still, today’s strong personal income and spending report provides reassuring evidence that momentum continued into the second half of the year. Though the business side of the U.S. economy has perked up recently, the consumer still holds the reins. Strong income growth, particularly when that strength is coming from the job market boosting wages and salaries, should help keep consumers’ spirits up near the recent highs indicated in consumer surveys, which bodes well for spending in H2.

Inflation Remains Tame

Both core and headline PCE deflators rose 0.1 percent on the month, as expected. The gap between headline and core PCE growth has closed as the effects of the decline in energy prices phase out of the year-to-year calculations. Core PCE inflation is now up just 1.4 percent from last year, which is the furthest it has been from the Fed’s target since December 2015. Historically, PCE data in the second half of the year tends to be revised upward, and this residual seasonality in the government data is no secret to the FOMC.

Previous articleYen Shrugs off Weak Japanese Mfg., Housing Reports
Next articleECB Exchange Rate Concerns Drag Euro Lower; Loonie Jumps on Canada GDP Beat
Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A, Wells Fargo Advisors, LLC, and Wells Fargo Securities International Limited. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company © 2010 Wells Fargo Securities, LLC.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.