Data Release: Strong personal income and spending growth in July
- Personal income rose a robust 0.4% in July, on par with survey expectations. Controlling for inflation and taxes, real disposable personal income was also up 0.4% (price growth was flat on the month).
- Personal consumption rose by 0.3% in both nominal and real terms. By component, real spending on durable goods led the way, rising by 1.9%. Spending on services rose 0.2%, while spending on non-durable goods edged down 0.1%
- Both income and spending were revised up in June, with personal income now registering 0.3% growth (from 0.2%), and personal spending up 0.5% (from 0.4% previously).
- Headline inflation edged down to 0.8% year-on-year (from 0.9% in June), while the core index remained steady at 1.6%.
- The personal saving rate drifted up to 5.7% (from 5.5% in June).
- This is a great way to start the second half of the year. Combined with upward revisions to the previous month and robust income growth, personal consumption is on track for 3.3% growth (annualized) in the third quarter. This builds on the narrative of strong household spending leading economic activity higher.
- The strength in income growth is really the story of this report, allowing households to add to savings while also increasing spending. With a sturdy savings buffer, spending should continue to rise in the months ahead.
- For a data-dependent Federal Reserve, the strength in real income and spending growth should offset the weak inflation reading. As long as job growth holds up and wages continue to move higher, the Fed should have all the evidence it needs to move forward with a rate hike this calendar year.
James Marple, Senior Economist
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