- Personal income edged up 0.1% in June, even as economic impact payments continued to pull back in the month, beating expectations for a fall of 0.3%. Wages and salaries increased by solid 0.7%. The rise was smaller than the increase in prices in the month. Controlling for inflation and taxes, real personal disposable income fell 0.5% in June.
- Personal consumption bounced back from its decline in May, rising by 1.0% and coming in ahead of the consensus forecast for 0.7%. In real terms, spending was up 0.5%, led by non-durable goods, up 1.2%, and services, which rose 0.8%. Real spending on durable goods fell for a third straight month, falling 2.5% in June.
- The personal saving rate fell 0.9 percentage points to 9.4% in the month.
- Inflation as measured in the personal consumption deflator was unchanged at 4.0% year-over-year, in line with the consensus forecast, while core PCE inflation (excluding food & energy) rose to 3.5% (from 3.4%), a smaller acceleration than expected (median estimate was 3.7%).
Key Implications
- After yesterday’s advance GDP report, today’s monthly data offered up details on the evolution of spending through the second quarter of the year. On average, monthly spending growth slowed considerably from the pace in the first quarter when the bulk of stimulus payments went out, but ended on a high note in June, setting up the third quarter for decent, albeit slower spending growth than the double digit pace in the first quarter.
- The transition away from robust goods spending toward services continued in June. The acceleration in services spending in June is a welcome sign and consistent with ongoing business reopening and consumers returning to activities restricted during past lockdowns. While the health crisis is not totally in the rear view mirror, restrictions of the kind seen earlier in the crisis are unlikely. Still, concerns around health may lead to prolonged labor shortages that prevent the economy from returning to normal and keep upward pressure on prices.
