Personal income in the US rose 0.3% in July, in line with expectations. According to analysts from Wells Fargo, personal spending remained elevated, although modest income growth coupled with rising inflation will likely weigh on consumption in Q3. They see inflation data of the report in line with a Fed rate hike in September.
Key Quotes:
“Personal income grew 0.3 percent in July, a slightly smaller increase than the consensus had expected and a bit slower than the prior month. Personal spending rose 0.4 percent on the month. Strong job growth and a tight labor market continue to be reflected in the sustained pace of wages and salaries, which were up 0.4 percent for the second consecutive month. However, a flat reading in proprietor’s income, after a large pick-up in the prior two months, held back a more significant gain for the overall income category.”
“Consumers spent the most on services last month, while goods consumption continues to be held back by a lack of spending on durable goods. After adjusting for inflation, personal spending rose 0.2 percent in July. With only modest gains in income, as well as sustained advances in inflation, we expect to see a slight moderation in consumption from the breakneck pace registered in the second quarter.”
“PCE inflation rose in-line with our expectations. The overall PCE deflator rose 0.1 percent in July, nudging the year-over-year rate up to 2.3 percent, marking the fastest pace in six years. Core PCE, a more reliable gauge of underlying inflation trends, was up 2.0 percent from a year ago. With both figures in line with the Fed’s target, there is nothing in this report to dissuade policymakers from raising the fed funds rate another quarter point at its September 26 meeting.”
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